Powell

The markets are latching on to two words in the Jay Powell speech, “just below” referring to where he thinks the neutral rate is. We know that no one really knows what the neutral rate really is but I “just below” is different then what he said in October when he said “we’re a long way from neutral at this point, probably.”

Of course we’re playing a game of semantics since after a December rate hike they will be at a rate of 2.25-2.5% which is technically “just below” a possible 3% neutral rate in their mind.

As the focus of the speech is ‘financial stability’ he did talk about the risks in corporate bond land but doesn’t believe it creates a “systemic threat.” He thinks the valuations of stocks are within historical benchmarks.

Bottom line, assuming a hike next month and that 3% is the rate level the Fed wants to get to, then yes they are ‘just below’ where they want to be, at the modeled out ‘neutral rate’. I think today’s comments take off the table FOR NOW the possibility of them wanting to get above the so called 3% neutral rate (assuming that’s what they think it is) and also what the markets are cheering.

Outside of the rally in stocks, the 2 yr yield is lower by 3 bps, the US dollar is getting hit and gold is up $12.

Should we expect a tweet today that Trump now loves Powell?