Fed: Dovish speech by Powell at Jackson Hole – Danske Bank

The speech by Fed Chairman Jerome Powell at Jackson Hole on Friday was on the dovish side and sent bond yields and the USD a bit lower while US stock markets rallied to a new all-time high, notes the research team at Danske Bank.

Key Quotes

“Powell argued for a continued gradual hiking path as the Fed navigates the twin risks of either choking off the recovery by hiking too fast or facing overheating if they hike too slowly. Policy will continue to be data driven and based on evaluation of the two risks.”

“A hike next month is close to a done deal and a December hike is also likely if the economy continues to perform well.”

“The US 2-10Y yield curve continues to flatten and is now below 20bp . An inversion could heat up the discussion of whether the Fed needs to slow down the hiking cycle or even pause. If the current pace of flattening continues, this could be the case already early next year.”