Yesterday’s Fed decision and the Powell press conference are still being digested

As expected, yesterday’s Fed decision and the Powell press conference are still being digested. There were two votes to cut, as expected. We watched the whole thing and thought Powell had a different tone from previous press conferences—and perhaps a tiny bit more dovish, as some analysts perceived. We were surprised to see equity indices falling if the dovish tone was correct.

Others say he was as hawkish as ever, which is consistent with the stock market disliking the comments. Maybe it’s a case of confirmation bias where you hear what you expect to hear.

Reuters reports the result was the same no-hurry message and it knocked “year-end easing bets back 10 basis points to just 35 bps. Futures now only see a 50-50 chance of a rate cut in September. “

The CME FedWatch tool at 8 am shows the probability of rates staying the same at the Sept meeting at 61%, from 39.2% a week ago. Remember, these percentages jump around by the minute.

We got an email from Goldman Sachs about how to get a better return in the savings account now that the Fed will be cutting three times this year, starting in September. Then two more in Oct and Dec. The press reports Goldman sees a terminal rate of 3-3.25% from 4.25-4.50% now. Goldman is wrong as often as anyone else but it’s an impressive set of comments, anyway.

Still, we have a fair amount of noise right now. Yields are not correlated with the dollar index and gold is up at the same time the dollar is up, violating the usual inverse relationship. Bottom line, the US economy is in fine fettle and not being damaged by tariffs so far. This is what any sensible person would expect because the tariff effect can take as much as 18 months to hit. It may be the US economic resilience that is pushing the dollar up, but it’s also the massively oversold condition being corrected. 

Forecast

Estimating how far a currency will pushback after being vastly oversold is a fools’ game. We can name the Average True Range limit at 1.1358 but the big traders who make the decision to stop may well be using some other limit. The best we can do is say it’s not over yet. It can slow down, reverse a little, and resume. Picking the end point is just not possible.

Off on the side, while we watch the euro and the dollar index, there is Japan. Talk of the 150 level being a line in the sand at which the BoJ will intervene is hogwash. See the chart. The horizontal line marks the 150 level. Japan is not about to complain about a too-weak yen while Trump is watching, let alone intervene. It has lived with worse levels and can do it again. Note that the dollar/yen is now above the 200-day. We show it because people want to see it, but it’s not anything important in the historical track record.

At the same time, the economic data sure do point to a rate hike and before next year, as now expected. Industrial output rose 1.7%, far more than forecast. Retail sales rose 1%, also more than forecast. The BoJ revised its forecasts and sees GFP at 0.6% this year, rising to 0.7% in 2026 and then 1% the next year. Core CPI is now 2.7% from 2.2% in the previous forecast. Why is the BoJ not tightening?

Tidbit: After the Court for international Trade said Trump overstepped his authority with all these tariffs, the case went to the Court of Appeals, which may deliver a decision soon. According to the WSJ, that court will hear appeals later today. If Trump loses, he will take it to the lackeys on the Supreme Court. Trump is using a 1970s law named the International Emergency Economic Powers Act. The word “emergency“ is on the dock. And even if the Supremes knock it down, Bloomberg has a list of other emergency powers he can use. 

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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