Breakfast Bites - Your move, Madame Lagarde

Rise and shine everyone.

What a move from Powell yesterday! Not only did they come close to declaring hikes were done, but they also added another rate cut to the roster for 2024. The wording was interesting: “We’re at or near peak rates” and we now have 75bps of cuts slated for 2024, up from 50bps. The press conference was also significantly dovish for Powell, while not declaring victory over inflation, he did seem to embrace being pleased with how inflation has decelerated.

Powell also spoke of positive real wages, since inflation has decelerated and wage growth is now above inflation. But, this in and of itself, is a dangerous stance since it means we’re starting from a higher base. In other words, the inflation we saw over the past two years will become structural in the system and we’re never going back to lower prices. This was probably a given, but I held out hope that we would see some acknowledgment of that.

The other thing that struck me as interesting was the discussion around growth. None of the questions around growth were answered with any degree of confidence, and Powell’s demeanor seemed to suggest they viewed a marked slowdown in growth. I am speculating here, but the last press conference that didn’t go so well was ahead of the banking crisis in early 2023. I am not the only one in saying so but, it would seem that there’s something that’s not being said.

The markets, however, loved the decision and just couldn’t stop rallying, as they called this an early pivot.

All eyes now turn to BoE and perhaps more importantly, Madame Lagarde at the ECB. Both rate decisions are today.

While there’s very little confusion as to what both Central Banks will do - a hold - there are some nuances as to how they will play it. For the BoE, the decision is far more straightforward and I doubt there will be any discussion of rate cuts just yet, even though we got a negative month-on-month GDP print yesterday. Wage growth is decelerating but continues to remain too high.

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