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Powell exudes dovishness during QA

March 17, 2021 5:16 PM

Powell exudes dovishness during Q&A

As Powell has been telling us for a month now, the FOMC is in no hurry to raise interest rates. And today, he stuck to his guns.   See our FOMC recap by Matt Weller for more on the statement and the “Dot Plots”.

However, the Q&A is what may have caught some traders off guard.  He wasn’t just dovish.  He was ULTRA-dovish!

According to Powell, this Fed is YEARS away from doing anything.  Powell said he can’t even look at a forecast 2-3 years out!  Even “a “transitory” rise in inflation above 2%, AS FORECAST THIS YEAR, would not meet our standard!” He noted that strong data should be coming our way.  (The dual mandate for the Fed is to keep inflation near its targeted 2% AND maximize employment.)  Powell talked about how the FOMC wants to see substantial progress, and not just forecasts,  before the Fed even begins to talk about tapering!  YIKES

Isn’t this why the Fed is always said to be “behind the curve”?  Isn’t this why there is the saying, “bond traders are always the first to know and the Fed is always the last to know”?  And what was Powell talking about when he said. “You can only go out to dinner once a night.” 

Super dovish.

After the statement was released and by the time the Q&A was over, the S&P 500 had spiked 40 handles (though only closing the day up 10.00) near 3963 and the DXY had fallen by 50 pips (down 46 on the day).  

For now, the DXY is holding horizontal support on the 60-minute timeframe and the 61.8% Fibonacci retracement from the March 3rd lows to the March 9th highs, near 91.35.  A break lower could see the DXY down near 90.64.  Resistance above is between 91.80 and 92.00.

Source: Tradingview, City Index

Has Powell convinced the markets that the Fed can outlast them by continuing extraordinary QE even if the data, both forecasted and actual, comes in stronger? 

We may see some follow through of the post-Fed market moves.  However, can it be sustained? The BOE meets later today and the BOJ meets tomorrow.  Can their level of dovishness match that of Powell?  That will tough to match!

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