Market Roundtrips As Dollar, Bonds, Stocks Shrug Off Powell"s Dovish Tilt

Update: It seems the market can"t make its mind up about whether Fed Chair Powell has made his mind up about inflation...

Shortly after the comments below, Powell reiterated that "we don"t want to fall behind the curve on inflation" and the market swung back to a hawkish interpretation...

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What the market interpreted 48 hours ago as hawkish, is now dovish.

On Tuesday Fed Chair Powell proclaimed boldly:

"CONFIDENCE ON INFLATION GETTING STRONGER"

700 Dow points lower and VIX back above 20 and we arrive at this morning and Powell"s flip-flop:

"NO STRONG EVIDENCE OF DECISIVE MOVE UP IN WAGES, MORE LABOR MARKET GAINS CAN OCCUR WITHOUT CAUSING INFLATION"

So dovish Powell is back and stocks are ripping higher...

Here are some of the highlights according to various desks:

• Wages less of a factor: Powell said that he expects to see more wage increases. “I would expect that some continued strengthening in the labor market can take place without causing inflation,” he said. “We don’t see any strong evidence yet of a decisive move up in wages.” This means the Fed is not as glued to rising wage prints (assuming they are there) as previously assumed.


• The Fed is also less hawkish on labor: Powell said there are a couple of places with additional slack in the labor market, primarily in the prime-age participation rate. He adds that unemployment is at or near the natural rate, even below.


• No evidence of overheating: “By continuing to gradually raise interest rates over time, we’re trying to balance those two things and achieve inflation moving up to target but also make sure the economy doesn’t overheat,” Powell said adding that “the economy is strong, and it’s even stronger now,” noting “there is no evidence the economy is overheating.” On the other hand, Powell also said that the Fed does not want to cause a recession by getting behind the curve and having to raise rates quickly.


• Fiscal policy: The tax bill will add meaningfully to growth in the next couple years but we are not on a sustainable fiscal path. Wouldn"t single out the tax bill as affecting rate hikes.


• Inflation: We see idiosyncratic factors behind low inflation, but is part of a global phenomenon. We don"t want to fall behind the curve on inflation.

And the dollar is dumping as gold pops.