For the markets, watching Powell’s presser was like watching a Spanish Soap Opera play out when the boyfriend barges in demanding answers only to inevitably get slapped right before cutting to commercial break… It was a classic “buy-the-rumor, sell-the-news” event. Initially the market saw the lower dots (2 more cuts confirmed for 2025) and believed in a happily-ever-after result… Plot twist- Powell rips off his mask and reveals his true identity: “El Halcón de la Inflación.” Translation: The Inflation Hawk.
As the Q&A played out, Powell downplayed the dovishness, threw cold water on rate cut euphoria, and reminded the markets that inflation is still lurking like a jealous ex with a burner phone. The market quickly reversed and began selling off I mentioned earlier this week that this meeting felt eerily similar to the sentiment we had exactly one year ago, when the market had priced in the same expectations of a 50bps cut. How this episode plays out will come back to the story the data tells us moving forward.. We’re entering a critical juncture in the pursuit of a soft landing…
Today we are continuing to see consolidation. The market is refining its view of the real economy, not to mention taking profits on the long rally runup going into yesterday’s meeting. One thing to consider is it often takes a few days for the markets to digest and find their footing. With more cuts on the horizon, it’s hard to justify a case that we retrace much higher for interest rates. We’ll need more economic news to decipher what’s warranted beyond the current range of 4.0 – 4.14 on the 10yr.
I don’t know about you, but at this point, some helpful subtitles for interpreting this market would be more than welcome. Hearing Powell say, “There is no risk-free path forward,” felt like the ultimate cliffhanger. As the story unfolds, we’ll eventually look back and decide whether El Halcón was the hero or the villain of this saga. It’s a tough role to be cast in, no doubt. One thing is for sure… This drama just went full Telenovela.