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π₯ Cautious Jay or the Fed is in no hurry
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It was interesting to observe the dynamics of market sentiment during the press conference: the short-term positive momentum for SPY (NYSE: SPY) quickly faded and updated its daily low since a rate cut is unlikely in the next three months.
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Why is the Fed hesitant to take this serious step? We have several ideas:
β’ The strong economy and labour market do not yet inspire confidence that the decline in inflation is stable. What if this is a temporary phenomenon? Or a data error? If you adjust the rate now and then have to increase it again, this will have an extremely negative impact on the regulatorβs reputation.
β’ Back in 2020, the Fed moved to a more flexible inflation target β not just 2%, but in the long term. Now this argument is interpreted in a different direction. Even a short period of inflation below 2% will not be a problem for the Fed, since it will only compensate for the high values of the last two years.
β’ Now is a great time for a pause: the economy is growing, unemployment is low, and inflation is almost at the target level β why change anything if everything is already comfortable? It is enough to simply state that "everything is ambiguous" and you need to wait for the latest statistics.
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All these factors will be relevant for another 3-4 months and the Fedβs arguments are unlikely to change at the next meetings. The regulator is again trying to convince the markets that everything is good and almost stable in the US economy, but at the same time, it expects that large players will get tired of waiting and start taking risks. So, the next NFP is worthy of special attention.
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Profits to yβall!