Powell Confirmed 100% Rate Cut! Not All Good News!
Summary
TLDRIn a recent speech, Federal Reserve Chairman Jan Power signaled a policy change with a strong indication of interest rate cuts, leading to a market rally. However, the US dollar's depreciation poses a risk for investors heavily invested in USD. Power admitted past mistakes in assessing inflation as transitory and emphasized current inflation's path back to 2%. Despite geopolitical tensions and recession risks, the market anticipates further rate cuts, with the US presidential election outcomes adding to the uncertainty.
Takeaways
- đ The Federal Reserve has indicated a policy change towards cutting interest rates, which has led to a rise in both stock and bond markets.
- đŁïž Federal Reserve Chairman Jan Power admitted the mistake of considering inflation during 2000-2002 as transitory, which has now proven to be persistent.
- đ The S&P 500 is nearing an all-time high, indicating a strong market reaction to the anticipated interest rate cut.
- đ” The US dollar to Singapore dollar exchange rate has decreased, potentially offsetting gains for investors holding US dollar assets.
- đ The market has become more volatile in recent years, with fluctuations sometimes occurring without clear reasons.
- đ The Federal Reserve has anchored inflation expectations through consistent messaging, helping to control inflationary pressures.
- đ Inflation was largely driven by pandemic-related distortions to demand and supply, but also significantly by monetary policy easing.
- đ Despite interest rate hikes, unemployment did not rise as expected due to supply chain disruptions and workforce re-entry post-pandemic.
- đïž There is a possibility of a ceasefire between Hamas and Israel, which could reduce geopolitical tensions in the Middle East.
- âïž The conflict between Russia and Ukraine has escalated, but it is not currently seen as a direct threat to the stock market.
- đ The US presidential election outcome could significantly impact the stock market, with different candidates potentially leading to varying degrees of market volatility.
Q & A
What was the main announcement from the Federal Reserve chairman, Jan Power, at Jackson Hall?
-Jan Power announced a policy change, strongly indicating that it's time for the Federal Reserve to cut interest rates.
How did the stock and bond markets react to the Federal Reserve's announcement?
-The stock and bond markets reacted positively, with both stocks and bonds rising in value.
What was the Federal Reserve's previous stance on inflation during 2000 to 2002?
-The Federal Reserve previously believed that inflation during that period would be transitory, meaning they thought it would be a short-term issue.
What mistake did the Federal Reserve admit to regarding their handling of inflation?
-The Federal Reserve admitted they were wrong in their initial assessment that the pandemic-related factors causing a sudden rise in inflation would be transitory and not require a monetary policy response.
What was the Federal Reserve's policy response when they realized inflation was not transitory?
-They quickly changed their policy, which led to a market crash but also provided an opportunity for investors to enter the market.
What did Jan Power indicate about the current state of inflation and the labor market?
-Jan Power indicated that inflation is on a sustainable path back to 2% and the labor market conditions are less tight than before the pandemic, suggesting that it's time for policy to adjust.
How did the S&P 500 react to the interest rate cut announcement?
-The S&P 500 rose significantly, nearing its all-time high, showing a strong market response to the anticipated interest rate cut.
What is the potential impact of the interest rate cut on the US dollar?
-The interest rate cut could lead to a depreciation of the US dollar, which might offset some gains in the stock market for investors holding US dollar-denominated assets.
What is the current political tension mentioned in the Middle East?
-There is ongoing political tension between Israel and its neighbors, with recent military actions and threats, although there are hopes for some form of ceasefire.
What is the current situation between Russia and Ukraine?
-The conflict has escalated with Ukraine occupying a small area called Kirks and blowing up bridges to fortify their position, while Russia is taking actions to reclaim the land.
How might the upcoming US presidential election impact the stock market?
-The outcome of the election could significantly impact the stock market, with different candidates potentially leading to varying degrees of market volatility or stability.
What is the outlook for interest rate cuts for the rest of the year?
-Markets are predicting a 100% chance of an interest rate cut, with most expecting a 0.25% reduction, although a quarter anticipate a more significant 0.5% cut.
Outlines
đ Federal Reserve's Policy Change and Market Reaction
The Federal Reserve Chairman, Jan Power, has signaled a significant policy change by indicating an imminent interest rate cut, which has led to a rally in stocks and bonds. The speech at Jackson Hall admitted past mistakes in assessing inflation as transitory and emphasized the need for a monetary policy response to anchor inflation expectations. The market's positive reaction is evident with the S&P 500 nearing an all-time high, while the NASDAQ and DOW Jones also show significant gains. However, the speaker warns of increased market volatility, which has been observed in recent years without clear catalysts.
đ” Impact of Interest Rate Cuts on Currencies and Business Costs
The script discusses the effects of interest rate adjustments on business operations and employment, noting that contrary to typical outcomes, the U.S. has not seen a significant increase in layoffs or business costs following rate hikes. The Federal Reserve's commitment to controlling inflation has anchored expectations, thus accelerating the decline in inflation rates. Additionally, the pandemic's impact on supply and demand is considered a significant factor in inflation, although the speaker partially disagrees, attributing a substantial part of the inflation spike to monetary policy easing. The discussion also touches on the 'hot money flow' phenomenon, where the expected interest rate cut leads to a depreciation of the U.S. dollar against the Singapore dollar, offsetting gains for investors.
đ Geopolitical Tensions and Their Market Implications
The speaker provides an outlook on geopolitical tensions, particularly in the Middle East between Israel and its neighbors, and the ongoing conflict between Russia and Ukraine. While the immediate military response from Iran has not materialized, creating a cautious optimism for potential ceasefires, the assassination of a military leader sparks further conflict. The speaker expresses relief for not sending a family member to Israel due to the instability. The escalation in Ukraine is seen as a challenge to Putin, but the speaker does not view it as an immediate threat to the stock market, hoping for diplomatic resolutions such as prisoner exchanges to de-escalate the situation.
đ Market Outlook Amidst Political Uncertainty and Economic Data Revisions
The final paragraph outlines the speaker's market outlook, considering the unpredictability introduced by the U.S. presidential election. The recent downward revision of job creation figures by the labor department has elevated recession risks, influencing the Federal Reserve's decision to potentially cut interest rates. Market predictions lean towards a 100% chance of an interest rate cut, with most expecting a 0.25% reduction, and a smaller portion anticipating a 0.5% cut. The speaker also contemplates the depreciation of the U.S. dollar as a significant concern for U.S. dollar investors, suggesting the possibility of a further weakening of the currency. The outcome of the election is highlighted as a critical factor that could introduce more volatility or stability to the markets, depending on the victor.
Mindmap
Keywords
đĄFederal Reserve
đĄInterest Rate Cut
đĄInflation
đĄTransitory
đĄStock Market
đĄMonetary Policy
đĄVolatility
đĄExchange Rate
đĄSupply Chain Disruption
đĄRational Expectations
đĄPolitical Tension
đĄRecession Risk
đĄU.S. Presidential Election
Highlights
Federal Reserve Chairman Jan Power's speech at Jackson Hall signals a policy change.
Markets reacted positively to the announcement of an expected interest rate cut.
The Federal Reserve admits they were wrong about inflation being transitory during 2000-2002.
Jan Power acknowledges the mistake of underestimating the persistence of pandemic-related inflation.
Policy change is indicated to address the non-transitory nature of current inflation.
Stocks and bonds rallied following the Federal Reserve's indication of an interest rate cut.
S&P 500 is nearing an all-time high, showing market confidence in the policy change.
Volatility in the stock market has increased in recent years with no clear catalysts for fluctuations.
The Federal Reserve has anchored inflation expectations through consistent messaging.
Inflation was largely driven by pandemic-related distortions to demand and supply.
Unemployment did not rise as expected due to supply chain disruptions and workforce re-entry.
The US dollar to Singapore dollar exchange rate has depreciated, impacting US investors.
Singapore ringgit is expected to strengthen against a weakening US dollar.
Political tensions in the Middle East and their potential impact on the market are discussed.
The conflict between Russia and Ukraine and its implications for the stock market are analyzed.
Inflation is expected to remain down, but the risk of recession has been elevated.
The US presidential election's outcome is a significant uncertainty for the stock market.
Markets are predicting a 100% chance of an interest rate cut by the Federal Reserve.
The depreciation of the US dollar is a significant concern for investors.
Transcripts
ladies and gentlemen there's good news
from the Federal Reserve chairman uh
jome Power has just made a speech at
Jackson Hall and there are some good
news that come out the whole Market has
ried but there's a big butt okay there's
a big butt everybody should watch and
I'll give a landscape view of what is
going to happen uh moving forward and
let's take a view of what things are
happening shall we so title of my talk
is today is good news the Federal
Reserve is 100% going to cut the
interest rate but there's a big butt so
we have something bad to watch out for
let's watch on so these are our usual
disclaimers and let's go the Federal
Reserve chairman Jan power has given a
speech on Friday and is basically said
that the time has come for a policy
change now he strongly indicate that
it's time for the Federal Reserve to cut
interest rates and as a result the
stocks and bonds all ried now the other
things he covered as well I think it's
important for me to just highlight to
everybody some of these things so that
we understand the psychic behind the
Federal Reserve so that in future when
the Federal Reserve makes any policy
changes we at least can anticipate what
the their intentions are so in
retrospect jum power admitted that the
Federal Reserve was wrong that they
believe during the 2000 to 2002 time
that the inflation would be transitory
so do you remember the time when they
did a QE unlimited and spiked up the
money supply and cut interest rates um
there was a time where inflation start
to go go up and they thought that the
inflation would be a short-term thing in
short it's called transitory this is the
first time the Federal Reserve admit
their mistake and actually say that my
colleagues and I judg at the onset that
these pandemic related factors would not
be persistent task the sudden rise in
inflation was likely to pass through
fairly quickly without a need for
monetary policy response in short the
inflation will be transitory and
basically in short they turn out to be
wrong right so it became clear that
later in about end of
2021 to early 20 2022 it became clear
that high inflation was not transitory
and will require a strong policy respon
if inflation expectation were to remain
well anchored so that's where they
quickly did the change and that caused
the whole Market to crash those were
history and that gave us a very big
opportunity to enter the market and a
lot of you make money from it and
congratulations to you the second thing
he specifically highlighted was this is
time for policy change and the interest
rate Cuts is lightly so uh I quote him
my confidence has grown that inflation
is now on a sustainable path back to 2%
uh labor market condition is now less
tight than just before the pandemic in
two 20119 we do not seek or welcome
further Cooling in the labor market
which means they think it's okay ready
the time has come for policy to adjust
uh so I think that's very important okay
so it's very very very clear like clear
until cannot clear that a interest rate
cut is coming so how did the stock
market reacted so the S&P 500 the r
right we are nearing a all-time high
soon okay the previous alltime high for
S&P 5 was
5669 now is
5634 just a little bit you know away
from the all-time high so the S&P 500 is
going to break through alltime high some
of you say I go up so high so fast you
know I haven't gone in yet my son uh
during the uh the crash a few weeks ago
was preparing to fire shots you know I
fire enough shots but he was preparing a
fire shots and he was waiting for the
stock market to crash further and
further right uh lesson learned is that
really it's very difficult to predict a
stock market movements in the short term
but anyway so right now the stock market
for S&P fun is going to hit all-time
high congratulations to all the second
thing is that the NASDAQ and DOW Jones
have all went up as well all went up
significantly interestingly uh the
NASDAQ is still quite a shade away from
the alltime high but the S&P 500 is
going to break through alltime high very
very soon and I Thing Worth not Noti is
that TLT which is the the US Treasury
they are 20 years and above uh is also
uh you know climbing and climbing so I
think it's good Russo 2000 which
generally tracks the smaller cap stocks
also went up so overall the whole Market
is just R know this is a case where the
whole tight get lifted up and everything
that floats all floats up but however I
need to say this that in the recent 2
years I've noticed that the stock market
is a lot more volatile than it used to
be in the past and I should expect this
volatility to happen and some of this
volatility has no reason you know or
very little reason that caused this uh
to happen right a few days ago the stock
market just went down by 10% don't know
why and then the stock market then
recover very quickly so I think
volatility is something that we have got
get to get uh get used to uh in the
stock market I haven't reached a point
about the but butut but I think it's
important for me to cover one important
thing that the Federal Reserve uh
mentioned a lot of people ask you know
when the interest rate Rose you know
cost of running operation goes up cost
of running businesses goes up usually
the employment uh will tank in short
that people get more layoffs and things
like that but why didn't that really
happen uh in US right Jan power provided
two reason it's important for us to take
note of this and I'll explain why first
of all the Federal Reserve has anchored
inflation expectation so when the
inflation hit up high reaching uh high
of 99.1% you actually see the Federal
Reserve coming out and just saying the
same thing again and again and again and
again basically say that we will bring
down the inflation back to 2% or we will
not stop you know a very tough monetary
policy Now by saying that they actually
anchored everybody expectation that
inflation will come down now if they
have not done that then the whole world
will spiral into expecting inflation to
go uncontrolled but because they were
firm on their commitment and articulated
that again and again and again and again
everybody knows that they that inflation
will eventually come down and that
brought down inflation faster this is
what Economist call rational expectation
right is basically say that they
anticipating what will happen and they
reacted accordingly if not now it become
a self-fulfilling prophecy right the
inflation go and people expect it go up
higher and that drives up uh inflation
higher so so inflation is a is a a huge
psychology play second is that in this
time the inflation was largely driven by
pandemic related Distortion to demand
and Supply but at least that's what he
says I agree that part of it uh C part
of it is uh driven by supply and demand
caused by a pandemic right that probably
kick off the whole thing and when this
thing was being brought down you know
inflation went down but I disagree know
I I think that a lot of the inflation
was a monetary phenomena which basically
means that because the Federal Reserve
were aggressively easing monetary policy
which means that they are doing printing
of money lowering interest rate
artificially and things like that that
caused a huge part of the spike right uh
I think the economist Milton fredman is
a Nobel Prize winner his famous
quotation was you know inflation has
always been and will always be a monary
phenomena so I think that's absolutely
true in this time the last point is why
did unemployment did not go up when
interest rate uh was being a hike was
because there were a lot of supply chain
disruption uh for example you know there
were extensive lockdown in China due to
due to covid you know and a lot of
people left the workforce at the start
pandemic everybody came back and the
supply chain was restored so that
actually ease off some of this Supply
constraint and resulted you know in uh
in Unemployment uh not being affected as
much so in short you know this is a very
uh important phenomena what basically J
power say this is a oneoff phenomenal
generally when there's an increase in
interest rate of this phen phenomena it
will lead to uh some pain in
unemployment you know don't expect this
unusual phenomenal to happen again right
so I think let's bear that in mind so
this is where I reach my big butt okay
butt so everything is good news right
interest rate uh cut will lead to stock
market rise bond market rise whatsoever
all my portfolio in US dollar terms has
gone up but the US dollar to Sing dollar
exchange rate have gone down and gone
down quite a lot so the S&P 500 in one
day has gone up by about 1% uh plus and
then the US to syn Dollar has gone down
by 0 77% or 7.78% so it kind of actually
wash off all the gains right so why is
that so well when interest rate is
expected to cut what happens right when
the US increased interest rates a lot of
the Singapore dollar went over to US
dollar denominated uh savings and assets
so a lot of people sell Sing dollar and
buy the US dollar so that they can
deposit into US dollar deposit and earn
those High interest in future because we
know the interest rate is coming down
and it's already it's already down what
would happen is that they will start
selling or already start to sell Sing
dollar place the money back to US dollar
deposits so this phenomena is called a
hot money flow and that's really
happening and that's why this thing is
is happening so the US to Sing dollar
right now is 1.3 right 1.30 uh that's
why my portfolio even US dollar has gone
up significantly but in sing the aums
not that much on this note is probably
news worthy to remind everybody that
Singapore ring gate will also continue
to weaken uh because Singapore dollar is
packed to a basket of internationally
traded currency and US dollar is one of
them so it will go down pretty
significantly as well so the ring gate
will continue to strengthen plus the
fact that the Malaysian economy is doing
actually very well and that also helped
the ring gate to further strengthen as
well so depending whether you are highly
invested in Malaysia not your you're big
shopper in Malaysia uh then you gain
otherwise or lose otherwise so what's
the Outlook from here Mr Lou so let me
give you my view there's this Jo
political tension in Middle East between
Israel and his neighbors that has no end
to it right so number one is that
something good has happened is that you
know the Iranian uh response military
response that they promised didn't seem
to happen they didn't seem to want to
proceed with their threat with Israel
and that that's good I think they are
trying to see whether there could be
some ceasefire in a shortterm midterm or
longterm way between Hamas and Israel
and hopefully with that you know there
could be some uh traction of threat from
Iran to Israel Iran doesn't really want
to enter a war in Israel Israel also
doesn't really want to enter war in Iran
so I think there's a bit of positioning
each step like like two dogs barking but
you know but they don't really want to
bite okay so I think that's good just as
we are talking about it this thing
happened the Israelis assassinated some
hisbah military leader and as a result
hisbah you know were lining up to launch
an attack on Israel and Israel I think
launched a preemptive strike against
them and hisbah launch attack back it
just boom boom boom boom boom boom just
just happened over the last 24 hours and
there's no end to it you know the only
thing I want to say is that thank God we
didn't send our son to Israel we were we
were all prepared for him to go to
Israel if I send him to Israel I will
have no peace every day wondering what
will happen to him so very good you know
he stay in Singapore I think that's a
good thing the other J Jo political
tension is that the war between Russia
and Ukraine has now escalated and I
mentioned it before uh Ukraine has now
occupied a small area like called Kirks
the area is not very big probably the
size of Singapore okay compared to what
Russia has taken over from Ukraine is
really a small part versus a big part
right but it's a slap on Putin's face
right so the ukrainians have occupied a
small piece of land size of Singapore
also about 1,000 square kilometers and
then they blew up all the bridges that
connecting to kurs you know and they're
fortifying their position right so again
Russia is taking some action to want to
take back the occupied land but I don't
see this as a threat to the stock market
I hope that this thing will will help in
the bar trade to stop War but I don't
think that will happen I hope it does I
see exchange of prisoners happening
let's hope that they can have exchange
of land and you know call it to end but
you know something about war is that
they don't they they start easy and
don't end easy and another interesting
thing about Outlook is that I think
inflation is likely to remain down I
think all of us uh realize that already
but I also want to say that the
recession risk has been elevated in a
unusual turn of event the labor
department actually released that the
figures that they previously have
computed about jobs creation were wrong
it should be much lesser in fact 800
100,000 lesser so this actually
increased the risk of a recession and
the Federal Reserve knows that and they
I think a bit right so they a bit scared
and I think they will quickly react in a
September they will cut interest rate
but this basically nail it unless there
a huge spike in September in inflation I
don't think that will change uh their
trajectory that they're going to cut
interest rate so the Outlook is that the
markets are predicting that there will
be 100% cut interest rate but majority
of them right about 76% believe that
they they only cut by 0.25% there's a a
quarter of them would think that they'll
cut by .5% so I think this is what I
call Fat hope so if they cut by .5%
means that something bad has happened
which I don't see anything really bad
will happen so over the next one month
so I think uh this is where it is right
this is predicted until cannot predicted
already the question right now is
subsequent months for the rest of the
year how much more interest rate will
will be cut so actually the biggest
uncertainty now is the US presidential
election and the election has huge
impact to a stock market what we don't
know is number one who's going to win
number two if who wins will have what
impact on the stock market but this is
uh going to certainly going to have some
some impact right now there are a lot of
straw poles that being done and the
polls are leading towards a haris having
a slight age above above Trump uh I
wouldn't consider this as a conclusive
that this giv us a hint that Trump
certainly has gone down it used to be
leading but now it's coming down Harris
is actually making a very strong uh
entrance into the race and he's she's
highly supported by powerful Machinery
behind them there's a huge LW of funding
two presidents are behind her namely
Barack Obama and Bill Clinton have stood
up and and used fiery speeches to
support her she spoke very well a few
days ago and I think ried a lot of
positive response there two more months
ago we shall see what will happen things
can happen you know real time I think
that right now it's a really a NE to
neck fight you know if Trump was to win
there is a set of likely outcome Market
will become more volatile if Kamala
Harris were to win you know there's
likely some stability but you know it's
uh it's hard to say right now so in a
nutshell I think it's good news uh that
interest rates are cutting and the
Federal Reserve outright declared that
the big but is the depreciation of the
US dollar because those people like me
are heavily invested in US dollar I
think that is not Unthinkable that the
US dollar could weaken to
$125 so this would certainly offset some
of the gains $125 or what it is today
represents maybe a 4% decline or
something like that so it's something
that we don't like to see but you know
as long as the US Stock Market continue
to climb over time I think it's
something I can Stark so let me hear a
view and I'll see you in the de too
bye-bye
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