The subtle shift came: Why markets soared during Powell's press conference

In my FOMC preview I highlighted the potential for a subtle Federal Reserve downgrade on growth and rate hikes potentially creating big waves.

"Even a subtle shift from Powell, or hint at open-mindedness to it, may be all markets need to see to sell the US dollar and buy risk assets. I think that’s the trade on this meeting and that’s what I’ll be watching for," I said concluding the video.

That's what happened.

At the very beginning of the statement there was actually some apprehension from markets as Powell struck a dower tone and repeated lines from the statement and said "inflation is much too high" and "the labor market is much too tight."

But markets flipped when he said:

"Another unusually large increase could be appropriate but it's dependent on data between now and then"

The text of that line doesn't quite capture the tone. He gave the impression that another 75 bps is unlikely. It was subtle but it was that shift that markets were looking for.

In the Q&A he added to it by saying, "We think it's time to go to a meeting by meeting basis and not provide clear guidance."

Another important bit was what he didn't say. He was asked about the market pricing in rate cuts in 2023 and chose not to push back, saying that predicting markets 6-12 months out is tough.

Coming into the meeting, the Fed funds market was seeing 75 bps in Sept as 50/50. It's now at 70% for 50 bps.

The result is a whopping 4.3% rally in the Nasdaq NASDAQ The Nasdaq Stock Market or NASDAQ is an American stock exchange. It trails only the New York Stock Exchange (NYSE) in market capitalization and is part of a network of stock markets and options exchanges.Launched back in 1971, NASDAQ is the acronym for the National Association of Securities Dealers Automated Quotations. Since then it is known simply as NASDAQ and has become one of the most influential exchanges worldwide.The NASDAQ was the world’s first electronic stock market, and has since ass The Nasdaq Stock Market or NASDAQ is an American stock exchange. It trails only the New York Stock Exchange (NYSE) in market capitalization and is part of a network of stock markets and options exchanges.Launched back in 1971, NASDAQ is the acronym for the National Association of Securities Dealers Automated Quotations. Since then it is known simply as NASDAQ and has become one of the most influential exchanges worldwide.The NASDAQ was the world’s first electronic stock market, and has since ass Read this Term and drop in the US dollar US Dollar The US dollar, (symbol $, code USD) is the fiat currency of the United States of America (USD) and the most widely traded currency globally. It was introduced into the US in the late 18th Century, with paper notes not being distributed until the following century. The US dollar, also informally known as the greenback, is the world’s most foremost reserve currency, due in large part to the importance of the US economy on the world stage. Once backed by gold (in the 1900’s), the USD is now a purel The US dollar, (symbol $, code USD) is the fiat currency of the United States of America (USD) and the most widely traded currency globally. It was introduced into the US in the late 18th Century, with paper notes not being distributed until the following century. The US dollar, also informally known as the greenback, is the world’s most foremost reserve currency, due in large part to the importance of the US economy on the world stage. Once backed by gold (in the 1900’s), the USD is now a purel Read this Term across the board. The market still has the memory of the pop and reversal on the Fed decision earlier this year so I'm not confident in that move extending but a soft GDP report in the day ahead (but not too soft) would keep the momentum going because it would show the Fed doesn't need to hike much further.