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Speaking in Chicago Federal Reserve Chairman Jerome Powell at “Conference on Monetary Strategy, Tools and Communications Practices” in decidely more dovish and watchful rhetoric talking of rates, trade talks and sustaining growth.

Fed Jerome Powell

We will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.

Key Quotes

Powell began his speech by addressing the elephant in the room:

“Recent developments involving trade negotiations and other matters.” “We do not know how or when these issues will be resolved,”  but “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.”

"In short, the proximity of interest rates to the ELB has become the preeminent monetary policy challenge of our time, tainting all manner of issues with ELB risk and imbuing many old challenges with greater significance,” he said.

"Powell said persistently low inflation could lead to “a difficult-to-arrest downward drift” in expectations. At issue for the future are three main considerations: where current policy is enough to address inflation misses; if the Fed’s toolkit of rate moves and asset purchases is enough to achieve the dual mandate of full employment and price stability, and how best to communicate policy to the public. One consideration is whether the “dot plot” of individual FOMC members’ rate projections is helping.

Powell suggested that during times of stress, the closely followed “median dot” actually could become the “least likely outcome.” Powell said the tools used during the crisis — near-zero rates and asset purchases that took the balance sheet to more than $4.5 trillion  are likely to be deployed again.

“Perhaps it is time to retire the term ‘unconventional’ when referring to tools that were used in the crisis. We know that tools like these are likely to be needed in some form in future ELB spells, which we hope will be rare,” he said.

The Reaction

  • EURUSD 1.1236 to 1.1266
  • AUDUSD .6960 to .6990
  • USDJPY 108.20 to 108,02 (Since bounced to 108.35 with stocksmarket)
  • SPX 500 2762 to 2788

The immediate thought is the Federal Reserve is content with the current easing interest rates scenario but near is good enough and that lack of inflation is a concern and he not worried about trade wars 'overly'.

There is little doubt everything about this Fed, and has been for a long time is about appeasing the stockmarket and it's particpants (read banks) not main street. This is a man I should remind that didn't blink when his tenure began with one of the fastest 10 percent falls in US stockmarkets in history. including the biggest Dow Jones point loss ever. Those days appear to have changed with the continuing trade war, President Trump' criticism of Chairman Powell and the crashing oil price.

Is the Fed Put back on"

The last successive Fed chairs has lulled markets into complacency and a concept of no risk. Former Fed chair Janet Yellen had even said the stockmarkets will not crash in her lifetime at one point.. The idea of a Fed “put” option under the three prior Fed leaders; Janet Yellen, Ben Bernanke and Alan Greenspan has been a feature of the bull market run since 2009. The US markets have reached a new level of silliness, no risk appreciation of trade wars, conflicts in Europe, political breakdowns in the U.K.. Germany and France. The nonsense that is Turkey politics. A new regime in Mexico, laughable NAFTA talks. The threat of Iran. What direction does China go? We could go on but what's it matter, market players will tell you it doesn't and its different this time.

Source: Reuters

From The TradersCommunity Research Desk

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