Two days ago, Fed chair Powell held a much anticipated Q&A at the Dallas Fed, in which while some read incremental dovishness to his September "we are far away from the neutral rate" speech, was quite upbeat overall, and most importantly said that while "stock market turmoil is something that affects the real economy and financial conditions matter for the outlook, defied hopes for a Fed intervention to halt the market slump saying that the Fed is "looking mainly at the real economy." In fact, one could say that Powell brushed aside the recent market volatility, saying the October episode is just "one of many factors in a very large pod" and that additionally "financial conditions and financial market activity matters a lot for that, and it's not just the equity market."
Fast forward to this morning when speaking to CNBC, Fed vice chairman Richard Clarida underscored the Fed's rising concerns with the global economy, warning that there is "some evidence of global slowing" while implicitly contradicting the September Powell by saying that policy is "getting closer to vicinity of neutral and being at neutral would make sense."
Just as importantly, Clarida said that the Fed should pay attention to the (slowing) global economic outlook, and said that he doesn't expect "a big pickup in inflation next year."
These comments were enough to send 10Y yields and the dollar sliding, with both now at session lows.
In fact, the dollar has tumbled to a one week low, erasing the entire hawkish FOMC move.
And while this initial bout of dovishness may have sparked hopes of an immediate market bounce amid expectations that the Fed may push back on a December rate hike, Clarida then said that he remains "optimistic on the outlook for higher productivity growth in the U.S."
Yet while there were some contradictions between Powell on Wednesday and Clarida this morning, the Fed vice chair once again snuffed out any hope that the "Fed put" is coming, when he said that the Fed "don't get a clear signal from stock markets so far", and that the Fed's policy rate is barely above the rate of inflation, while adding that "gradual policy approach has served the Fed well."
This confirms what we said on Wednesday in our Powell post-mortem: "the Powell "Fed put" is still hundreds of points below the current level of the S&P", even if the market isn't so sure, and in direct response to Clarida's speech has pushed futures off session lows.