Powell Says "Economy Faces Some Risks" But Is "In A Good Place"; Spoke To Dimon, Moynihan

Following a disappointing jobs report, which could have been worse on the headline payrolls print but was quite dismal in terms of wages, which actually dipped by 1 cent sequentially and rose at the slowest pace in a year, traders were looking ahead to the day's final event, the speech by Fed Chair Jerome Powell titled "Perspectives on Maximum Employment and Price Stability."

However, anyone hoping for an advance look at the upcoming October and December FOMC decisions was disappointed, as Powell stuck close to the vest, repeating his now standard that the economy "faces some risks" but "overall it is in a good place."

Some of the other highlights from the uncharacteristically short speech, via BBG:

  • Powell: Fed's Job Is to Keep Economy Expanding 'As Long as Possible'
  • Powell: Low Inflation and Low Interest Rates Leaves Fed With Less Room to Cut Rates in Downturns
  • Powell: Fed Is Examining Strategies to More Consistently Achieve 2% Inflation Target
  • Powell: Fed Listening Sessions Reinforce Importance of Sustaining Strong Job Market
  • Powell: Fed Has 'Significant Protections From Short-Term Political Pressures'
  • Powell: Political Independence Gives Fed an Obligation to Explain Actions

The key sentences from the speech:

  • “Unemployment is near a half-century low, and inflation is running close to, but a bit below, our 2% objective,” Powell says without directly addressing Friday’s jobs report
  • “While we believe our strategy and tools have been and remain effective, the U.S. economy, like other advanced economies around the world, is facing some longer-term challenges -- from low growth, low inflation, and low interest rates”
  • “Low can be good, but when inflation -- and, consequently, interest rates—are too low, the Fed and other central banks have less room to cut rates to support the economy during downturns”

And while the speech did not provide any clues into what comes next, Powell's calendar, which was released at the same time as his speech, may have:

  • *FED'S POWELL HELD PHONE CALLS AUG. 1 WITH DIMON, CORBAT
  • *POWELL MET WITH BANK OF AMERICA'S MOYNIHAN AT FED ON AUG. 14

Overall, the market reaction was a snoozer, because while the dollar modestly pared some losses following Powell's comments, the rate cut odds barely budged, with the Fed Funds still pricing in roughly 1.4 rate cuts by December 2019, down from 1.6 before the FOMC report.