The most critical question and answer of the press conference was:
Q: I’M STRUGGLING TO UNDERSTAND WHAT HAS CHANGED SINCE WE MET WITH YOU SIX WEEKS AGO. YOU THINK INFLATION WILL BE THE REASON THE FED NEEDS TO CONTINUE RAISING RATES. CAN YOU SPEAK SPECIFICALLY TO WHY YOU’VE MOVED FROM RAISING RATES THIS YEAR TO POSSIBLY STANDING STILL?
POWELL: FIRST, THE NARRATIVE OF SLOWING GLOBAL GROWTH CONTINUES. THE INCOMING DATA HAVE SHOWN MORE OF THAT. WE’VE SEEN THAT IN CHINA AND WESTERN EUROPE. THAT HAS IMPORTANT IMPLICATIONS FOR US. THAT STORY CONTINUES. IN ADDITION, I THINK POSSIBLY LESS IMPORTANT NOW HAS BEEN THE SHUTDOWN, WHICH WILL LEAVE SOME IMPRINT ON FIRST-QUARTER GDP. WE DON’T KNOW THE ULTIMATE RESOLUTION OF IT. IF THAT’S ALL THERE IS IN THE SHUTDOWN IS GONE, WE WILL GET MOST OF THAT BACK IN THE SECOND QUARTER. IN ADDITION, YOU HAVE TO LOOK BACK — FINANCIAL CONDITIONS BEGAN TO TIGHTEN. THEY HAVE NOW PERSISTED AND REMAINED TIGHTER, SIGNIFICANTLY TIGHTER THAN THEY WERE. THAT IS SOMETHING WE HAVE TO TAKE INTO ACCOUNT AS WELL. THAT’S WHERE WE ARE.
Powell’s press conference confirms that the Fed’s pause is, in reality, the end of the hiking cycle. Now markets expect the Fed’s target range for the federal funds rate to remain unchanged for the remainder of the year, followed by rate cuts in 2020 as the economy starts to slide into a recession
I will publish detailed forecasts later today and tomorrow.
Three main instruments are likely to be much more attractive for the investors midterm.
GBP ( Brexit should be solved), Gold and JPY.
We may add CAD to this list depending on the Oil Prices. ( Q2 )
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