The day we’ve all been waiting for has finally arrived and I just hope it will be worth all the hype that preceded it.
There’s been a lot of caution in the markets this week, investors perched on the fence and waiting patiently for the latest thoughts of Fed Chair Jerome Powell. Jackson Hole always gets a lot of attention, something we probably have former Fed Chairman Ben Bernanke to thank for, given his many mic drop moments in the aftermath of the global financial crisis.
The event always seems to land at an important time for monetary policy so the collection of central bankers and a keynote speech from the Chair naturally attracts a lot of attention. It’s a perfect opportunity to lay the groundwork for a big policy shift a few weeks later and at one stage, it appeared that Powell may use this platform for just that purpose.
But a lot has changed in the last few weeks. The data is showing softness, particularly in the surveys where delta nerves are weighing on expectations as cases surge and fatalities continue to rise at a worrying rate. The economy has bounced back strongly but the committee may not be as aligned on tapering as they seemed after the jobs report.
While we may have heard some very hawkish views from James Bullard, Robert Kaplan and Esther George on Thursday that triggered some risk aversion in the markets, there are two things all of these have in common. They all typically land towards the more hawkish end of the scale of Fed policymakers and none are voters on the FOMC this year.
So the comments from Jerome Powell today may not necessarily align with their views. Don’t get me wrong, tapering won’t be put off for long and a December start may well be on the cards. But Powell may well refrain from saying too much today and instead give the Fed a few more weeks to assess the data ahead of the September meeting.
Whether investors would welcome the Chair joining the rest of us on the fence and view it as a positive for the markets, we’ll see. It leaves plenty open to interpretation. The data over the next few weeks may improve, the Covid trend may reverse itself and provide more comfort for policymakers.
One thing looks clear, any suggestion that the Fed is happy to proceed with a taper in September may get a nasty reaction in the markets. The Fed could offset this with a commitment to reduce asset purchases at a more gradual pace in order to alleviate concerns. I’m just not sure if that would be enough to alleviate concerns and Powell may not view it as a risk worth taking.
Bitcoin steadies but correction may still be on the cards
Bitcoin has steadied itself after Thursday’s selling, with the crypto managing small gains today. It has continued to rally in recent weeks but momentum has been increasingly lacking. These kinds of divergences often precede corrective moves which is what we may be seeing play out in bitcoin.
A move below $46,000 could signal a broader correction in bitcoin, with $44,000 being the next big test below. A move back towards $40,000 - $41,000 would be very interesting, although there’s some way to go first.