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The Fed Makes a Major Monetary Policy Turn

22 Years ago | February 03, 2019 3/22/23, 12:00 AM

John M. Bland, MBA, co-founder,

Fed Chair Powell Signals Major Changes In Policy One Thing You can’t say about Jerome Powell is that he is not decisive. As widely expected, the Fed kept interest rates steady at its January 30 meeting. Many were predicting a dovish bias at the meeting and on this he delivered. Personally I was expecting a more neutral posture. Powell sent the message that policy is “data dependent”, but the central bank can now be patient in deciding if it needs to raise rates again. Importantly, the Fed removed from the previous policy statement the likelihood of future gradual rate hikes. Powell stated that the current economic picture for the U.S, is “somewhat contradictory” and that common sense suggests patience. As for the Fed balance sheet question, Powell was non-committal on future actions. At the previous meeting, he said that the unwinding of excess bond holdings as a result of the financial crisis was on ‘auto-pilot”. This comment triggered a whirlwind of criticism of this strategy while the U.S. and global economies were starting to slow. He reiterated that current Fed policy is data dependent and that interest rate changes are the preferred mechanism for executing adjustments to monetary policy.

What Does this Imply For The Financial Markets? From here forward, it could pay for investors to take things one day at a time with policy potentially now in flux. All that Powell has taken off the table is the prospect for now of future official interest rate hikes. The U.S. already enjoys a significant interest rate advantage against most other major economies. A more dovish Fed could also support U.S. equity markets and thereby draw more foreign funds into U.S. equity and interest rate instruments and thereby generate fresh USD demand. This all remains to be seen, but is something to watch out for as the dust starts to settle. The next item on the agenda is the January U.S. employment due on Friday February 1. Recent U.S. employment data have been exceptionally strong lately. One thing to watch out for in the data is any temporary distortions in the data due to the recent government shutdown. We will be close tabs here on how the markets and digesting the Fed decisions today.


GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Mon 4 Feb 2019
A 09:30 GB- Construction PMI
Tue 5 Feb 2019
A all day Service PMIs
A 04:30 AU- Reserve Bank Of Australia
Wed 6 Feb 2019
A 16:00 US- EIA Crude
Thu 7 Feb 2019
A 12:00 GB- BOE Decision
A 13:30 US- Weekly Jobless
Fri 8 Feb 2019
A 13:30 CA- Employment

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