The Fed: Was Fed’s Powell dovish or not? 4 key takeaways from today’s press conference

by | Jul 27, 2022 | Stock Market

Investors reacted as if Fed Chairman Jerome Powell’s press conference Wednesday was dovish, but many economists think it was on the hawkish side of the street. Here are some of the key takeaways from Powell’s hour-long discussion with reporters about the state of the economy and central bank policy: Read: Fed jacks up rates to combat highest inflation in 41 years

You say ‘dovish’ and I say ‘hawkish’ After Powell spoke, stock prices

rose sharply and bond yields
declined more at the short end than the long end, clear signs the market thought Powell was dovish. But Robert Perli, head of global policy at Piper Sandler, disagreed with this conclusion. “The press conference was hawkish,” he said. “All Powell could do at the press conference today was talk about how inflation was too high, how the Fed is determined to bring it down, and implicitly how he would be willing to tolerate a recession if that’s what’s needed to get the job done,” Perli said. The market latched on to Powell’s statement that slowing down from the pace of 0.75-percentage-point rate hikes will likely be appropriate “at some point.” Perli said this is “obvious” as the Fed can’t continue on that pace forever. The market also liked when Powell said the Fed was moving to a new “meeting-to-meeting” phase, perhaps believing that a peak in interest rates is near. Perli said that’s a misreading and Powell doesn’t want to give guidance because there is so much uncertainty. Scott Anderson, chief economist at Bank of the West, said the lack of forward guidance from the Fed could increase interest-rate and stock-market volatility around important U.S. data releases, especially on inflation “as investors try to determine what it might mean for the pace of additional rate hikes and the terminal peak for rates in the current tightening cycle.” Powell ‘bobs and weaves’ on recession Powell managed to “bob and weave” around the questions of recession, said Josh Shapiro, chief U.S. economist at MFR. Powell said the Fed wasn’t trying to create a recession and did not expect one, and also that we are not currently in one. He refused to categorically state how it would affect the Fed’s policy path if one materialized, Shapiro said. The Fed chairman s …

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