Market Overview

Wednesday's Market Minute: Countdown To Powell

Wednesday's Market Minute: Countdown To Powell

Over the next two days, attention should shift back to one of the key forces in markets right now: Jay Powell's dilemma. Not a whole lot has changed since we last heard from the Fed chief, and therein lies the tension. U.S. manufacturing trends are showing signs of following the rest of the world lower, but the economy is still not obviously bad enough to justify rate cuts by the standards of the more hawkish members on the committee.

Yet, the market is still expressing great certainty in Mr. Powell’s moves, with multiple rate cuts baked in for 2019 and hope for a double-cut in September still lingering around at a 15%-30% chance, depending which day you look at Fed Funds futures. And what number you get largely depends on what the stock market is doing on that day. Odds of a 50bps revision surged when the S&P 500 slipped further from its high in early August, tempered as the market remained range-bound, and jumped yesterday as stocks fell and manufacturing data worsened.

If the Fed wishes to extricate itself from the market’s demands, it must act soon. A slew of Fed speakers over the next 24 hours can lay the ground work for Powell, who is scheduled to speak on Friday (after the latest employment report). He has kept the door wide open to cuts, but given his mixed language of the past, will need to either commit to them soon, or tear the Band-Aid off and be ready for the fallout.

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