European open – Powell tempers expectations

Fed dashes rate cut hopes

Stock markets are looking a little soft now heading into the G20 later in the week after Fed Chair Jerome Powell insisted that the Fed will be insulated from short-term political interests.

Source – Thomson Reuters Eikon

It’s quite clear who that message was intended for but it’s actually investors that it seems to have struck a nerve with. The impression that investors have got over the last week is that the Fed is prepared to cut rates and will start in July but these comments have thrown a spanner in the works.

Interest rate expectations haven’t changed too dramatically though but the odds of 50 basis points have halved. This was also helped by Bullard’s suggestion that 50 points may be overdone and 25 would be sufficient.

Source – Thomson Reuters Eikon

Given he’s one of the more dovish members, that sends quite a strong message. I still think markets are too dovish at the moment, almost trying to force the hand of the Fed. They may end up being successful to a point but the message we’re getting from these latest comments is that they’re may be expecting too much.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.