FED Powel Speech – What Matters Most
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Context & setup. The Fed cut 25bp on Sep 17 to 4.00 – 4.25% with Miran dissenting for 50bp; minutes (Oct 8) show officials easing but still wary on inflation and noting easy financial conditions. Staff estimate core PCE 2.9% y/y (Aug) and U-rate 4.3% (Aug).
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Data vacuum. Because of the government shutdown, fresh releases have slipped; September CPI is now due Fri 24 Oct, four days before the Oct 29 FOMC. Powell almost certainly leans on that timeline and keeps optionality.
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Market pricing. Futures/OIS price an October cut as near-certain and high odds of another in December; FedWatch and related trackers show 90 – 100% probabilities. Powell can validate or lean against that path.
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Financial conditions. Risk assets are buoyant (e.g., gold at records, tech bid, dollar softer); Powell may nod to froth and avoid pre-committing.
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Tariff impulse. Several Fed voices have flagged tariffs lifting inflation (Williams: +1pp late-2025/early-2026). That argues for measured rather than aggressive easing rhetoric.
Our base case (what we expect Powell to say)
Tone: Balanced with a mild hawkish tilt vs market pricing.
Message pillars:
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“Proceed carefully / data-dependent.” He highlights the shutdown-related data delays and the importance of the Oct 24 CPI before the Oct 28 – 29 meeting.
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Two-sided risks. Acknowledge softening labor (U-rate 4.3%; downshifted payrolls) but stress inflation still above 2% (core PCE 2.9% y/y) with tariff pass-through.
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Financial conditions watch. Note easier conditions and asset strength, implying cuts are not on autopilot.
Translation: He doesn’t pre-commit to an October move; he keeps the door open (“we will act as needed”), subtly leaning against talk of an accelerated path. Relative to markets (pricing near-certain October), this is slightly hawkish.
What Would Differ from Consensus
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Dovish surprise: Any line that hints “appropriate to adjust policy again soon” (or cites risk-management favoring further near-term easing) would validate October & December and pull front-end yields 5 – 8bp lower, DXY lower, equities firmer.
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Hawkish surprise: Emphasis that tariff-driven inflation and easy financial conditions argue for patience (or explicit pushback on back-to-back cuts) would lift 2y yields 3 – 6bp, nudge DXY up 0.2 – 0.4%, and cool risk.
Market Reactions
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Rates: 2y 3.6%; 10y 4.14%, watch 2y for direction; 10y around 4.10 – 4.20% is the near-term pivot.
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USD: DXY 99 with heavy resistance near 99; a hawkish lean could test above; dovish lean likely fades.
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FX spot reference: EURUSD 1.16, GBPUSD 1.33, USDJPY 152.00 heading into the event; USD reaction should track 2y yields.
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Risk tone: Gold’s record high.
Our Conclusion