Was Fed’s Powell dovish or not? 4 key takeaways from Wednesday’s press conference

You say ‘dovish,’ and I say ‘hawkish’ After Powell spoke, U.S. stock prices DJIA, +0.95% SPX, +0.96% rose sharply and bond yields TMUBMUSD02Y, 2.879% declined more at the short end of the yield curve than the long end, clear signs that the market thought Powell had been dovish.

Scott Anderson, chief economist at Bank of the West, said the lack of forward guidance from the Fed could increase interest-rate and stock-market volatility around important U.S. economic data releases, especially on inflation, “as investors try to determine what it might mean for the pace of additional rate hikes and the terminal peak for rates in the current tightening cycle.”

Powell ‘bobs and weaves’ on recession

Powell said the Fed wasn’t trying to create a recession and did not expect one, and also that we are not currently in one. He refused to categorically state how it would affect the Fed’s policy path if one materialized.

Powell said the Fed is determined to bring inflation down, and this likely means a period of “below-trend economic growth and some softening in the labor market conditions.”

What about September?

Powell kept the door open for another “unusually large” 0.75-percentage-point hike at its next meeting in September, but he said it would depend on the data.

Carl Tannenbaum, chief economist at Northern Trust, noted that Powell suggested that the year-end federal funds rate would be in the range of 3.25% to 3.5%. That implies moving another 100 basis points higher, which the Fed might prefer to accomplish with a 50-basis-point increase followed by two 25-basis-point hikes, rather than going from 75 basis points in September, to 25, then to zero.

Powell “sounded marginally less hawkish to me,” Tannenbaum said.

Balance-sheet plans

Powell said the Fed’s program to shrink its balance sheet is working and markets “should be able to absorb this.” He said the plan was on track and could take 2 to 2½ years.

Some economists are starting to forecast the Fed will end the “quantitative tightening” program next year.

https://www.marketwatch.com/story/was-feds-powell-dovish-or-not-4-key-takeaways-from-todays-press-conference-11658965985