Dollar declines extend post Powell, November is no longer live but future rate hikes still on table Somoybulletin

Wall Street went on a mini rollercoaster ride during Fed Chair Powell’s speech.  Powell’s comments were mostly in-line with other officials and support the belief that policy might not be “too tight” and future rate hikes may be needed.  Powell’s comments support their higher for longer mantra, but fell short of signaling a rate hike was likely in December.  Until inflation is much lower, the Fed will try to jawbone the market into thinking more hikes are possible.

Fed Chair Powell Key Quotes from prepared remarks:

• Additional evidence of a strong economy may merit hiking
• Geopolitical tensions are highly elevated and pose key risks
• FOMC proceeding carefully given risks, hikes so far
• Financial conditions moves can affect policy if persistent

The dollar extended declines after the release of Fed Chair Powell’s speech.  Fed Chair Powell said, “Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy.” The initial market reaction was somewhat dovish as Powell acknowledged that persistent changes in in financial conditions could change the path of monetary policy.  The bond market helped them take rates to restrictive territory that should break the economy and allow for inflation to fall to the Fed’s target.

Fed Chair Powell’s Q/A:

• At the margin, yield rise could mean less need to hike
• Fed has to let rise in yields play out, watch it

The long-end of the curve surged higher but pared gains, the 30-year Treasury yield settled around 5.05%, roughly 5.5 bps higher on the day.  Powell noted that losses in commercial real estate are inevitable, but that they don’t see it causing broader problems.  With the risk of an immediate rate hike off the table the dollar settled softer against all of its major trading partners.

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