Federal Reserve Analysis: Quiet end to hikes? Powell calls for patience, markets set to party

Please make it stop – that is what investors must feel in response to the seemingly endless tightening cycle. The Federal Reserve has only gently pushed back against markets by indicating calling for patience and stressing the importance of data. 

Fed Chair Jerome Powell refused to give forward guidance and stressed the importance of data. The bank will make decisions on a meeting-by-meeting basis. While it upgraded its comments on the economy – moderate instead of modest growth – it sees expansion as a good thing.

Regarding the burning topic of inflation, the Fed is holding off the champagne bottles, saying the latest report could be a one off. Nevertheless, it sees current policy as restrictive. 

In his well-balanced and message, there was one word that stood out – patience. It means no urge to raise rates. I expect markets to focus on this message and run with it. 

Fed Chair Powell's will have another major opportunity to speak – the Jackson Hole Symposium on August 25. Historically, that is where he and some of his predecessors signaled policy changes. Will he seize the chance? Until then, the Fed will have another Nonfarm Payrolls (NFP) and another Consumer Price Index (CPI) report.

If he refrains from clear messages at that Wyoming gathering, Powell and his colleagues will still have another NFP and a last CPI before the Fed's September decision. With growing signs of cooling in the services sector – 70% of the US economy – and global headwinds, pressure will likely grow on the Fed to end. Investors know that.

Why am I so convinced markets will rise? The Fed said it is data-dependent, and the most critical figure is falling fast – core inflation. Underlying price rises slowed to 4.8% YoY in June, and there seems to be no turning back. This is below the Federal Funds Rate (FFR). And once again: patience. 

What does it mean for traders? If my analysis is correct, it means the current bounce in the US Dollar is a selling opportunity, the meltdown in Gold is a buying opportunity, and stocks offer another "buy the dip|" opportunity. There will likely be a lot of back and forth, but the direction of travel is "risk-on."