Federal Reserve Chairman Jerome Powell laid out the Fed’s new focus during a 60 Minutes interview (filmed on Thursday, a day after the Fed’s latest rate policy decision and aired Sunday night). Powell’s key statement: ‘we feel like we can approach the question of when to begin to reduce interest rates carefully’. And further: ‘We think the economy’s in a good place. We think inflation is coming down. We just want to gain a little more confidence that it’s coming down in a sustainable way.’
In the FOMC’s rate policy statement on Wednesday, Fed officials struck a more hawkish tone: ‘The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.’
Powell’s comments are seen by some as a departure from the Fed’s stated policy. And given that Friday’s Nonfarm Payrolls report for January was nearly double the estimate, and Y/Y earnings were clearly inflationary (+4.5% vs. +4.1% estimate), perhaps in hindsight Powell would have stuck more closely to the FOMC script. By the time Powell’s interview aired yesterday it was already dated news.
The dollar is higher today, building on Friday’s gains. The U.S. Dollar Index is +0.44% today and +1.29% since Friday’s payrolls data. The DXY moved effortlessly above the recent 103.75 hurdle, and after some minor resistance at 104.50, dollar bulls are eyeing a move higher to 105.00. The dollar has gained against all major currencies, the biggest advances +0.78% vs. SEK, and +0.62% vs. GBP.
Yields on U.S. Treasuries are higher with even gains near 9 basis points in the mid to long-term (3yr-30yr) tenors. Yield on the 10-year is now 4.122% after touching a 3.815% low last Thursday.