The FED Changes The Game, USD Flounders
Shain Vernier • 1 min read
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.
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.