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Powell’s talk about being just below the neutral rate sent the greenback lower. But was it that dovish?

Here is their view, courtesy of eFXdata:

 CIBC Research discusses its reaction to today’s Fed Powell speech.

The Fed Chair gave some comfort to those of use who think a 4% fed funds rate would be overkill, by saying that rates today are “just below neutral” and emphasizing that there isn’t a pre-set path…

But remember that the last FOMC message argued that rates would have to go above neutral in order to end up at a non-inflationary unemployment rate that they judged is higher than the current jobless rate. He still sees a   lot to like about the US outlook, a message to us that would be consistent with hiking again in December.   Moreover, he didn’t use this opportunity to point out signs of slowing either in the US or globally,” CIBC notes.

So while our forecast is for only 2 hikes next year (well below the last FOMC dot projection) and an ease in 2020, we don’t see this speech as quite as dovish as the market seems to be taking  it. The bulk of his remarks were focussed on financial stability, with the Fed seeing the financial sector on a solid footing, asset prices looking reasonable, but some concern expressed about corporate debt quality,” CIBC adds.

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