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Economic Indicators Released Overnight
Growth and Labor Market: Powell highlighted a slowdown in U.S. GDP growth to approximately 1.5% in the first half of 2025 (down from 2.5% in 2024). The labor market has weakened notably, with unemployment rising to 4.3% in August and monthly payroll gains averaging just 29,000—insufficient to prevent further deterioration. He emphasized that downside risks to employment have intensified, prompting the Fed's policy shift.
Inflation Dynamics: Headline PCE inflation stands at 2.7% year-over-year, with core PCE at 2.9%—both above the 2% target. Much of the recent uptick stems from tariffs, which Powell described as a "one-time price shock" manifesting gradually through supply chains. He noted this effect is likely short-lived and concentrated in goods prices, while services (including housing) continue to moderate. However, tariffs could ultimately prove deflationary by curbing household spending and demand.
Monetary Policy Stance: The FOMC's 25 basis point cut lowered the federal funds rate to 4.00–4.25%, positioning policy as "slightly restrictive" but moving toward neutral. Powell stressed a cautious, data-dependent path forward, warning that "overly aggressive" cuts risk reigniting inflation, while insufficient easing could exacerbate job losses. He reiterated there is "no risk-free path," with the Fed prioritising balance amid trade-offs.
Broader Implications and Market Reactions
Powell underscored the Fed's independence, stating political considerations play no role in decisions, and defended the use of extraordinary tools during recent crises to maintain public trust. He also flagged elevated asset valuations, including stocks, as a potential vulnerability in a high-uncertainty environment.
Chair Powell’s speech on the economy and monetary policy, was interesting for 3 reasons.
Tariffs could ultimately prove deflationary by curbing household spending and demand.
In his view, policy is “slightly restrictive”.
He flagged elevated asset valuations, including stocks
More rate cuts said the market (again), but careful because it’s not the FED’s business to comment on asset valuations unless they’re inflationary.
US Equities and Bitcoin were the immediate victims:
Trump says Ukraine in position to win back all of its territory [FT]
China Courts Foreign Gold Reserves to Boost Global Clout [Bloomberg]
UK and US to smooth capital markets access and crypto cooperation [Reuters]
Bitcoin is taking a hammering, record volumes of stops triggered, EFT outflows etc but we’re still at 112k. Price needs to regain 117.1k for a revisit to the highs, but likely further downside to 103k.
Posts saying Bitcoin will never go below 100k again, draw price to that very level like a magnet. Ditto Trump’s sons saying “Buy the dip” should have you shorting it in the short-term.
Best advice is to zoom out a bit, look at price structure not hysteria.
Powell induced some volatility. Price hit 3,790 before collapsing on his comments but unlike equites and Bitcoin, it was still a positive day.
Still expecting push near 4,000 in the next month, with a close below 3,625 negating.
DXY pushed lower, closing right on the 15 year support trend line.
I have a feeling that monthly PCE on Friday is going to shock the markets one way or other. Market is fully demanding those rate cuts and, if it’s perceived that they’re not coming, then up we go in USD, DXY and rates. And if PCE changes nothing how low can price go?
Poor close for the NASDAQ but no directional decision as we haven’t confirmed outside of the tight wedge pattern. It’ll have to break very soon as channel is becoming too narrow.
The long wick down to 22,060 on 17th September looks to be an inflection point and break below would target trend support at 21,500.
Everybody seems to be talking about a correction which makes a break higher more likely.