Yesterday Was The Bullard Bounce, Today Powell Channels His Inner Dove

The Fed rockstars are firmly back in the spotlight with their daily financial market jawboning. Today, it’s Powell’s turn. Here are the details…

Yesterday we reported on the dovish comments made by James Bullard.

To recap, he said the ongoing “weak” US inflation and the global uncertainty around the trade wars may require the Fed to take stimulative action.

Today, we get Chief Fed Head Jerome Powell.

And he’s channeled his inner dove.

From Zero Hedge:

One day after James Bullard opened the door for the “patient” Fed to start cutting rates and sending yields and the dollar sliding, moments ago the Fed Chair doubled down on dovishness when in a speech delivered to the Chicago Fed, Powell confirmed the Fed’s openness to cut interest rates if necessary, stating that the Fed’s unconventional tools are now conventonial and will “likely be needed in some form in the future” as he pledged to keep a close watch on the escalating trade war between the US and some of the world’s largest economies.

Sparking a renewed dovish kneejerk reaction was Powell’s flashing red headline that the Fed will “act as appropriate” to sustain the expansion, while affirming the the Fed is closely monitoring implications of trade negotiations for the US economic outlook as the “Fed does not know how or when trade issues will be resolved.” Here is the key segment from his speech:

 “I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.

In a surprising twist, Powell said that with the economy growing, unemployment low and inflation stable “it’s time to rethink long-run strategies.” Powell also hinted that both QE and ZIRP, and perhaps NIRP are on deck, stating that interest rates so close to zero “has become the preeminent monetary policy challenge of our time,” and admitting that “perhaps it is time to retire the term ‘unconventional’ when referring to tools that were used in the crisis. We know that tools like these are likely to be needed in some form in the future.” And the clearest hint that the Fed is preparing for a deflationary tide was Powell’s preview that “the next time policy rates hit the lower bound – and there will be a next time – it will not be a surprise.

 

But wait, there’s more, because in the clearest indication that the Fed is panicking about losing control over inflation expectations, Powell said that “my FOMC colleagues and I must—and do—take seriously the risk that inflation shortfalls that persist even in a robust economy could precipitate a difficult-to-arrest downward drift in inflation expectations.

Translation: not only is the Fed ready to cut rates, but it may take “unconventional” tools during the next recession, i.e., NIRP and even more QE.