Powell Quick Analysis: bullish on jobs, bullish on inflation, dodging trade, more USD gains?


  • Fed Chair Jerome Powell's prepared statement is mostly optimistic.
  • He does not dive into the sensitive topic of trade.
  • The US Dollar has further room for gains.

Federal Reserve Chair Jerome H. Powell's prepared statement in his semi-annual testimony to Congress is mostly optimistic about the economy.

On growth, Powell states that the economy has grown at a robust pace. He says that Q2 growth is considerably stronger than in the previous quarter. Looking forward, the Fed Chair says that outlook is solid. Besides, financial conditions are favorable to growth.

On employment (one of the Fed's mandates), he says that the unemployment rate is expected to fall further. Specifically, on wages, he says that wage growth is faster than a year ago, albeit below that seen before the crisis. He stresses that there are still differences between Whites and other groups, but that the employment growth is spreading. 

On inflation, he says that the most recent inflation readings are encouraging. He also ties inflation to monetary policy, saying it will reach the target with the appropriate monetary policy.

On rates, the essential topic for markets, Powell continues conveying the same message: gradual rate hikes will be appropriate. This opens the door to a hike in September and another one in December. 

All in all, he is positive on all four topics.

And on the most sensitive topics, Powell dodges the bullets. He says it is hard to predict the trade and fiscal policy outcomes. He will find it hard to avoid addressing these topics for too long.

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Powell is bullish on all economic aspects and does not express any concern about tariffs and their risks to the economy. 

His message is in line with the recent "sleep well at night" interview last week and is bullish for the US Dollar.

The greenback front-ran the statement and rallied across the board. In the aftermath, we see a mild sell-off of the buck, but this is limited. The broad trend is positive. 

More: Trade wars make metals heavy, but safe-haven currencies seem unsafe - correlations are changing

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