In a speech titled "living life near the ZILB," NY Fed's Williams suggested the lesson learned is to "take swift action" and the market appears to have taken that as uber-dovish, dumping the dollar and bidding for bonds and stocks...
*WILLIAMS CURRENTLY ESTIMATES NEUTRAL RATES IN U.S. AROUND 0.5%
*WILLIAMS: LONG-TERM FORCES LOWERING NEUTRAL RATES SET TO LINGER
*WILLIAMS: INVESTORS SEE LOW INFLATION READINGS AS A NEW NORMAL
As Bloomberg's Cameron Crise notes, that refers to the real neutral interest rate, or r*, and not the nominal one of course. Perhaps the most pertinent comment from Williams is the injunction to:
"First, take swift action when faced with adverse economic conditions.
Second, keep interest rates lower for longer.
And third, adapt monetary policy strategies to succeed in the context of low r-star and the ZLB."
It's that first point that appears to have sparked chaos as it could argue for policy action that's more aggressive than it seem is required.
This sent the odds of a 50bps rate-cut in July to a shocking 55%
So much for Powell's jawboning expectations back.
The dollar slumped...
Bond yields tumbled...
And stocks levitated (with Nasdaq getting back to unch)...
Another potential catalyst for the move was headlines from The Guardian claiming that Iran offered to agree to a nuclear deal if US dropped sanctions.