The FED Changes The Game, USD Flounders

When it comes to FED policy, the current tone is overwhelmingly dovish. Only time will tell if this is a brilliant or desperate stance.

FED annoucements

Earlier this morning, Jerome Powell issued prepared comments at the virtual Jackson Hole Symposium. His message was profound: the FED will shift policy to “average inflation targeting.” As of today, the 2% target rate is out ― a 2% average rate is in.

So, what exactly does this mean? Essentially, the FED is planning to let inflation run over 2% for a period before tightening policy. The goal of this move is to promote economic growth and maximum employment by holding off on rate hikes. At this point, the long-term prudence of such a policy shift is wildly debatable.

In other economic news, this morning brought an upward revision to Q2 2020 GDP. The number came in at -31.7%, beating expectations of -32.5%. Realistically, the GDP figure is next to meaningless; everyone knows production fell off due to the COVID-19 shutdown and no one is surprised.

All in all, it’s been a turbulent day for stocks as traders debate the prospect of more FED QE. At the midway point of the session, the DJIA DOW (+50), S&P 500 SPX (-7), and NASDAQ (-92) are mixed.

Dovish FED Sends USD Into Uncharted Waters

In a Live Market Update from yesterday, I outlined a shorting opportunity in the GBP/USD. The trade hit its profit target quickly, producing 28 pips profit. Since then, the market has been choppy, failing to find a direction.

FED
GBP/USD, Daily Chart

Overview: When it comes to FED policy, the tone is overwhelmingly dovish. At this point, Jerome Powell and the FOMC are concerned about their ability to manage further crises from a 0% rate posture. To remedy the situation, they have decided to promote inflation, growth, and employment. Only time will tell if this is a brilliant or desperate move.

ABOUT THE AUTHOR See More
Shain Vernier
US Analyst
Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.

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