Bonds, Big-Tech, Bitcoin, & Bullion Blast Off As Dovish Powell Pussys Out

Where did the Jackson Hole hellraiser go?

As one market veteran commented, after noting that Fed Chair Powell seemed to refuse to take any bait on the hawkish side, erring dovish on the future with almost every question asked during the presser, “it appears that the Dems got to him after all…”

We want to bring down inflation, but that means landing the plane not crashing it. Chair Powell should pause his interest rate hikes and remember his dual mandate: fight inflation without throwing millions out of work.

— Elizabeth Warren (@SenWarren) February 1, 2023

This sent the terminal rate dovishly lower and sparked a dovish surge in rate-cut expectations (over 50bps of cuts now priced in)…

Source: Bloomberg

With the market now pricing in a capitulative Fed cutting cycle very soon (or as we noted earlier, hiking the odds of a recession-prompted aggressive rate-cut cycle)…

Source: Bloomberg

Or put another way, today’s comments by Jay Powell added 40bps more rate-cuts into the Fed’s cycle through January 2024 (yes that chart shows the market is pricing in rates being 43bps below current levels 12 months from now)…

Source: Bloomberg

Fed Chair Powell started off hawkishly, reiterating that the long lags of monetary policy actions are still to come:

Full effects of rapid tightening have yet to be felt even though the economy “slowed significantly” last year

Fed rates ‘higher for longer’…

“We continue to anticipate that ongoing increases will be appropriate.”

“Restoring price stability will likely require maintaining a restrictive stance for quite some time.”

“We’re talking about a couple of more rate hikes.”

Signaling more ‘pain’ to come…

“The labor market remains extremely tight.”

“The labor market continues to be out of balance.”

“While recent developments are encouraging, we will need substantially more evidence to be confident inflation is on a downward path.”

There are no “grounds for complacency,”

But stocks took off when Powell shrugged off the recent dramatic loosening of financial conditions:

Powell notes that financial conditions have tightened very significantly over the past year, and that “it is important that overall financial conditions reflect” but added that “our focus is not on short-term moves, but on sustained changes” to financial conditions.

Presumably, The Fed is not looking at the same loosening collapse in financial conditions that the market is…

Source: Bloomberg

Bear in mind that financial conditions are easier now than they were when Powell unleashed hell at Jackson Hole.

So with that “unwarranted easing” ignored, the markets went wild on the back of the ‘easy’ Fed attitude.

US equities surged higher as the presser began with Nasdaq leading the charge (up over 2.5%) and the Dow lagging. Some late-day profit-taking (from the 0DTE muppets?) wiped some lipstick off the pig and dragged The Dow to unch for the day…