Markets Are Convinced of Rate Cuts, Ignoring Central Bank Threats
Today it was quiet, with the USD in a slight retreat. The most striking headlines came from major central bank members, who continue to oppose market pricing for rate reduction next year but, markets aren’t buying it. Earlier ECB’s Vasle and Kazimir made some hawkish comments. The price action in most pairs has been slow as a result.
The dollar is weak overall but neither side is really taking charge. Despite lower rates, the USD/JPY rose from 142.40 to 143.20, while the commodity dollars have just turned lower from minor gains from earlier, losing around 30-40 pips. Aside from that, traders didn’t have much to work with. European equities retreated lower after recent strong advances, US futures have barely changed, while bond yields have made a bullish reversal in the bond market.
Later in the US session, FED members started popping up, with Gooslebee and then Mester who is a mouthpiece for chairman Jerome Powell trying to convince markets that they have gone too far with rate cut pricing by the FED. Below are her comments:
Remarks by Cleveland Fed president, Loretta Mester
- Market Expectations and Rate Cuts:
- Mester noted that markets are “a little bit ahead” of central banks when it comes to expectations of rate cuts.
- She highlighted that the next phase is not about deciding when to reduce rates, despite market anticipation.
- Monetary Policy and Inflation Target:
- Mester emphasized that the focus is on determining how long monetary policy needs to remain restrictive to achieve the 2% inflation target.
- The concern is not solely about cutting rates, but about maintaining an appropriate level of policy to meet inflation goals.
- Market Perception of Policy Normalization:
- Mester mentioned that markets have jumped to the conclusion of a quick normalization, but she does not share that view.
- The perception is that the Federal Reserve will swiftly return to more traditional policy, but Mester does not see this as the case.
- Current Fed Policy Settings:
- Mester stated that the Fed’s policy settings are currently in a good place, suggesting a balanced and appropriate stance.
- Avoiding Inadvertent Restriction:
- There is a caution against inadvertently becoming more restrictive than what is deemed appropriate. This reflects a careful approach to avoid unintentional tightening of monetary policy.
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