Why Was Powell's Speech Considered Hawkish Despite the Fed's Interest Rate Cut?
Federal Reserve Chairman Jerome Powell delivered remarks that were deemed hawkish by the market, even though the US central bank had just cut its benchmark interest rate. Powell's cautious tone led investors to reduce expectations of more aggressive cuts in the near future.
Powell emphasized that this rate cut was not the start of a long cycle of monetary policy easing. He said the decision still depended on developments in economic data, particularly inflation. He added that although inflation had fallen, the risk of a further increase remained.
Looking ahead, Powell was cautious about further action, stating that the Fed was now in a "meeting-by-meeting" mode. In their post-meeting statement, policymakers acknowledged that inflation was "rising and remains somewhat elevated," but also highlighted concerns about employment. Officials said the unemployment rate was "up slightly," and "downside risks to employment are increasing."
The optimistic tone about the US economy also added to the hawkish tone. Powell noted that economic growth remains resilient, while the labor market is not yet solid enough. This view led the market to believe the Fed lacked the urgency to aggressively lower interest rates.
Furthermore, Powell did not provide clear guidance on the future direction of policy. This uncertainty led investors to speculate that the Fed could hold interest rates longer than expected.
The market response was clear: US bond yields rose, while the dollar strengthened against a basket of major currencies. These two indicators reflect how Powell's speech was perceived as more hawkish than dovish.
"The market was expecting a stronger dovish signal, but Powell instead emphasized inflation risks and the strength of the economy. That's why his speech was seen as hawkish," said one global market analyst.
Source: Newsmaker.id
