Hawkish Powell! US100 Drops ⚡

The Fed's chief signaled further interest rate hikes in Jackson Hole. Nasdaq cuts its gains! 📉

Today at 3:05 pm BST time, the Chairman of the Fed, Jerome Powell, delivered a speech at the symposium in Jackson Hole. Shortly after the start of his address, the markets reacted with slight gains. However, we eventually saw a pullback both in equities and in the EURUSD. The speech itself was brief, concise, and maintained in a hawkish tone.

• Powell's overall message was hawkish. He emphasized that the Fed is ready to continue raising rates but aims to bring inflation to target.
• The Federal Reserve Chairman did not express any special satisfaction or joy with the 'disinflationary trend'. He highlighted that the core PCE inflation is still too high, and the current momentum of price pressures might not be lasting.
• Markets were hoping for information on the end of the rate hike cycle or any message about possible cuts in 2024. Instead, Powell signaled that rates might increase and that the neutral interest rate might not be appropriately calculated given the ongoing period of economic expansion (US GDP grew in the second quarter above forecasts).
• Currently, swaps price in a 20% chance of a 25 basis point hike at the next Fed meeting on September 20th. The markets also see higher chances of rate hikes in November and December.

Source: Bloomberg L.P.

• At the same time, Powell emphasized that some macro indicators have cooled down, but from the context of the message, one could infer that a final victory over inflation would require a period of economic slowdown and worsening labor market data.

On the US100, we see gains in the initial reaction, followed by a pullback of the index to the level before the speech. Currently, the index continues its decline, and if the downward pressure persists, a retest of the resistance at 14,600 points - the last local trough - is not out of the question.