Stocks are sniffing a dowish pivot, and Powell’s careful tone suggests that the bias of the fed can bend in that direction – even if it will not say it yet. There is no difficult commitment, but the bond market is clearly betting that the next step is down.
Labor solid, but tariff still a wildcard for inflation
Powell’s taking on the economy was mixed. The labor market is still solid, and hangs in development, but he marked trade and tariff risks as ongoing headache. The Fed is still not sure how much inflation is in the pipeline from the supply chain deformities, and Powell admitted that it would “take time” for those effects. The path of inflation is a mess, and the patience of the fed is deliberately.
Fed framework was reviewed, but 2% inflation is the target firm
There was some reflection for “flexible average inflation targeting” on the 2020 axis-a trick Powell now admits that covid inflation has increased after post-inflation. That playbook was not well age, and while the fed would not leave 2% target, it is clearly running a tightly. Powell emphasized the importance of anchoring long-term expectations-a sign for reliability concerns after “fleeting” misfire.
Emphasis on freedom as political heat
Without Trump’s name, Powell made it clear that Fed did not take the order. Policy decisions will be “based only on data”. Translation: The market matters more than the White House. Traders must focus on upcoming data-especially inflation as tie-breakers for print and consumer expenses-September decisions.
Outlook: Place to cut Fed – if the data collaborates
Not more likely, the fed is setting the platform to cut a rate – but they are not in a crowd. Powell is patting the needle amidst market expectations and uncertainty of inflation.
Look at the pullback as possible procurement opportunities in risk assets, especially if the coming data softens. But then, we are not out of the forest yet. Bottom Line: Fed is not slam on brakes, but they are reducing gas – and smart money is a position for a twist.
