Powell's Dove Transformation
I just listened to the Fed press conference, and my take is that Chairman Powell has decidedly turned dovish.
Even though he re-emphasized that the recent reserve additions should not be construed the same way as the longer-term Treasury purchases of QE, Powell made it very clear that the 2% inflation target is what he is most concerned about. The USD (as measured by the DXY which I cited yesterday) initially spiked on worries of a “hawkish cut” – that Powell was going to cut one last time and then re-affirm vigilance on when to go back to a hiking stance. Instead, Powell said that “we are not immune to disinflationary pressures from around the world” and would not look to hike again unless there were sustained signs of a resurgence of inflation. I think this is very significant. To me, it shows that Powell understands the concern of a too-strong USD importing economic weakness from abroad and is willing to stay accommodative and even let the economy run a bit “hot” before the next hiking cycle.
The DXY immediately reversed course on this statement:
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