US markets expressed a sign of relief overnight followed as Fed Chair Jerome Powell’s less hawkish than feared stance at the post-FOMC press conference. Major stock indexes closed mixed while treasury yields dipped with Dollar.
Most importantly, Powell characterized the current interest rate level as “sufficiently restrictive,” and indicated that it is “unlikely that the next rate move will be a hike.” Instead, Powell delineated the future monetary policy path as a decision between “cutting” and “not cutting” interest rates, depending on economic data.
This stance comes in the wake of stronger-than-expected inflation data since the beginning of the year, leading Powell to acknowledge that it would “take longer than previously expected” for Fed to be confident that inflation is on a steady decline toward the 2% target. policymakers to become comfortable that inflation will resume the decline towards 2%.”
“If we did have a path where inflation proves more persistent than expected, and where the labor market remains strong but inflation is moving sideways and we’re not gaining greater confidence, well, that would be a case in which it could be appropriate to hold off on rate cuts,” Powell said. “There are paths to not cutting and there are paths to cutting. It’s really going to depend on the data.”
More on FOMC:
- First Cut by Fed is September at the Earliest
- May FOMC: Stalling in Inflation Leaves FOMC Stalling for Time
10-year yield closed down -0.0910 at 4.595 in reaction to FOMC. Technically, another rise could still be seen as long as 4.568 support holds. But even in this case, TNX should continue to lose upside momentum ahead of 4.997 high. Meanwhile, break of 4.568 will indicate that it’s at least in a near term pullback towards 55 D EMA (now at 4.408).
