Federal Reserve Chairman Powell’s long-anticipated speech at Jackson Hole provided fireworks but not quite what the market had expected.  Confirmation of tapering was supposed to lift US rates and the dollar. Instead, the opposite took place, and there was a logic to it, which we drew your attention to by raising the possibility of a “dovish tapering.”  Powell confirmed that the July minutes “revelation” that tapering could begin this year and drew a stark distinction between tapering and raising rates.  

Interest rates at both ends of the curve softened, and the dollar fell.  The implied yield on the December 2022 Fed Funds futures fell by 2.5 bp ahead of the weekend, the most in a month.  At 25 bp, it still indicates that a quarter-point hike remains fully discounted.  The 10-year yield also fell by four basis points, the most in a couple of weeks. The Dollar Index recorded a large outside down day,…

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