BREAKING: Market receives Powell's speech dovish, US100 gains 📈

Powell's comments:

• The longer high inflation persists, the more likely it will become entrenched.
• Size of Sept. rate hike dependent on data
• Will likely require restrictive policy for some time (hawkish)
• July's lower inflation readings are welcome, but fall short of what is required before the Fed is sure that inflation is declining
• The labour market is notably strong, but out of balance. Rising inflation has spread
• The benchmark overnight interest rate of 2.25%-2.50% is, not a place to stop or pause. These are the unfortunate costs of reducing inflation, but failing to restore price stability would mean far greater pain
• 'At Some Point' Fed Will Be Able to Slow Pace of Rate Rises
• Restoring price stability will most likely necessitate keeping a tight monetary stance for some time.
• Lowering inflation is likely to necessitate an extended period of below-trend growth.
• The US economy is clearly slowing, but it still has strong underlying momentum.
• Fed swaps anticipate smaller rate cuts in 2023 than before Powell comments.

FED's earlier comments:

Fed members Bostic, Harker and Bullard spoke before Powell's speech, the tone of the comments is mixed for markets. Raphael Bostic hinted at achieving and maintaining a restrictive cycle of rate hikes as soon as possible, a view agreed with Patrick Harker, who added that he was unsure how long rates would need to be at restrictive levels to effectively choke off inflation.

Bostic announced that the Fed may be waiting for a slowdown in the US labor market because the strong (pro-inflationary) US NFP data so far shows still significant job growth each month. The Atlanta Fed chief stressed that a future Fed hike will depend on labor market data - a repeat reading of strong data could prompt the Fed to hike by 75 bps so the next NFP reading on September 2 will be a particularly important publication. Bostic also stressed that looking at today's PCE report, the US economy is continuing the 'controlled' slowdown needed to choke off inflation. 

Harker pointed out the slight risk of recession, with a note of its possible seasonality, and stressed that in his opinion unemployment does not have to rise to 5% for the Fed to be forced to affect inflation. James Bullard, in turn, commented on the markets' dynamic reactions to the Fed's further projections. He signaled that it would be prudent to potentially postpone further hikes until the future, although the first effects of weakening demand by past hikes are already visible. Bullard maintains a 3.75%-4% rate hike through the end of this year.

The US100 negates the early declines and rises higher. Source: xStation 5