Fed's AIT poses challenge for USD from cyclical perspective – TDS
|Commenting on FOMC Chairman Jerome Powell's speech at the Jackson Hole Symposium, "the Committee seeks to achieve inflation that averages 2% over time," TD Securities analysts noted. "Therefore, following periods when inflation has been running persistently below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time."
Additional takeaways
"That's the key new line on inflation in the new longer-run goals and strategy statement discussed by the chairman in his Jackson Hole talk. It, along with new wording on employment, makes for a more dovish reaction function, although a more dovish reaction function was already evident in actions and speeches."
"The chairman did not elaborate on what "moderately above 2%" means. We think it means up to 2.5%. Nor was there any new information on the tools and communications practices part of the review. However, with the strategy part wrapped up, the focus now turns to reflecting average inflation target (AIT) in forward guidance on the funds rate."
"The move to AIT is hardly a surprise but reinforces that the USD's real yield advantage has been lost. This poses a challenge for the USD from a cyclical perspective and gives more credence to chip away at the USD's longstanding overvaluation. Tactically, USD shorts are deeply entrenched, but that doesn't mean it is due for a reversal."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.