“There are ‘doves,’ but no one can see them.” Jerome Powell’s statement that interest rates are in a good place and that no FOMC members are currently advocating for changes puts Stephen Miran in stealth mode. He voted for a loosening of monetary policy. But no matter how hard he tries to impress the president, he goes unnoticed and is shown the door. It’s quite possible that the same fate awaits Kevin Warsh, the recently confirmed Congress appointee for the chairman of the Fed. This is all the better for the “bears” in EURUSD.
“Whoever comes to us with a sword will die by the sword.” Donald Trump’s tactic of pressuring the central bank is turning against the White House. The president preemptively put forward his candidate, wanting to present the markets with the so-called shadow Fed chairman. Investors were supposed to react more to his speeches than to Jerome Powell’s. It didn’t work out. He remains an FOMC member until 2028 and promises to keep a low profile. A subtle humor that signifies a victory.
Jerome Powell’s decision to remain on the Committee, along with his statement that the labor market is showing increasing stability while inflation behaves erratically, means only one thing: interest rates will not be lowered. After the press conference, the futures market raised the likelihood of a rate hike in 2026 to 14.5%. Three dissenters are eager to make this happen. They objected to the previous wording that a loosening of monetary policy was more likely than tightening it. Along with Stephen Miran, the number of dissenters has increased to four, the highest number since 1992.
JP Morgan believes that the growing number of dissenters against the resumption of the monetary expansion cycle sends a message to Kevin Warsh. Over the next six weeks, they will transition from dissent to a genuine desire to raise rates. The lowering of rates, which the White House insists upon, has become a major issue. It’s not just the Fed that stands guard, but also the financial markets.
When there is a loosening of monetary policy in a strong economy, investors raise risk premiums for higher inflation through increasing Treasury yields. This was the case during the last cycle of monetary expansion. As a result, the U.S. economy did not benefit from lower rates.
The outcome of the April FOMC meeting resulted in increased market confidence that there will be no loosening of monetary policy anytime soon. This is all the better for the U.S. dollar.
