Trump’s Coercion or the Fed Facing the Facts?

Equities in the US saw significant rally yesterday on the back of a dovish tone from the Federal Reserve chairman, Jerome Powell.

Although Powell highlighted in early October that the Fed is a long way from the neutral rate (the rate where the economy is neither contracting or expanding), he did further change his stance yesterday mentioning that the interest rate is “just below” neutral. He also highlighted in his speech that there is no present policy path and the FOMC would only be responding to economic and financial data as they come – further dimming the light on the already priced in hikes by market participants; the USDollar index depreciated on this. In plainer terms, the Fed is saying that they would be entirely data dependent and their forward guidance on the economic outlook is not clear as market participants had thought or are thinking.

On the other side, President Donald Trump has vocally expressed his dissatisfaction for a hawkish Fed – that is a Fed that continues to hike and reduce its balance sheet in this context.

Considering the Fed’s chair were quite confident with their forward guidance in early October, making a U-turn yesterday begs the question – did Trump coerced the Fed or is the apex bank just facing the facts? Whatever the case, it is quite a coincidence.

The Dow Jones surged by 300 points on the back of the Fed’s dovish tone. Other US equities and indices followed similar bullish path; a move Trump would highly appreciate.

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