SMM News: Wall Street's attitude towards Powell is interesting. When he first revealed a little dovish stance, but still insisted that there was no need to cut interest rates, a group of people accused him of succumbing to political pressure and losing credibility.
When he really made the market smell the possibility of cutting interest rates, the same group of people stopped blaming him and began to quietly enjoy the benefits of these "market-friendly" remarks. In fact, Powell did not explicitly say that he would cut interest rates, but he was obviously not talking about raising interest rates by "paying close attention to" trade progress and "as always taking appropriate measures to maintain economic expansion." Then there's only another possibility.
So on Wednesday, after the "small non-farm" ADP hit a nine-year low in new jobs, U. S. stocks were still able to rise-in hopes of a rate cut by the Federal Reserve.
The S & P 500 is up 3% in the past two days
Michael Every of ABN AMRO Rabobank called Powell a "superhero" who jumped out to save the market. He is no longer the tall Powell who was expected to lead the United States out of ultra-loose monetary policy a year ago, but now this "short" Powell is better than a big fall in the market.
As Michael Every puts it, the Fed has long insisted on "data first", but neither historically low unemployment, a record high stock index, tariffs or inflation well below its 2 per cent target do not support a rate cut.
But the "short" Powell opened up the possibility of more QE. In his speech on 4 June, he mentioned that it might be time to remove the "unconventional" language when referring to the monetary policy instruments used during the crisis. "We know that tools like these are likely to need to come in some form when the 'effective floor' of policy interest rates comes in the future."
Although Powell also said that "using monetary policy to put enough pressure on the labor market to boost inflation may create the risk of excessive instability in financial markets or other areas," Michael Every believes that Powell does not seem to be aware of it. The only solution to this is deglobalisation, deregulation and massive fiscal intervention. "there is no other way to solve the structural problems of labour and capital." By contrast, stock market investors are more likely to believe in monetary policy.
On the other hand, Powell's speech pushed both long-term US bond yields and US stocks higher, but the dollar exchange rate fell. Interest rate cuts may mean a weaker dollar, but Michael Every points out that politics could erase that effect.
The Michael Every said it would be comfortable for the Fed to restart both the QE, European dollar market and emerging markets at some point in the future; however, "we are more likely to see" tariffs that tightly lock dollar liquidity in the US.