Yesterday JPowell was very dovish. In summary, it's clear that the FED will use every tool necessary to achieve full employment.
This implies that he'll let inflation run hot above 2% for a while. The recent rise in the US 10 YR yield indicates inflation is coming. However, JPowell said that he won't use tools to raise rates to follow the yield curve yet but implied that the FED may extend treasuries maturities should higher yields negatively affect unemployment numbers. Unemployment is still high.
How to ride this out
This implies that he'll let inflation run hot above 2% for a while. The recent rise in the US 10 YR yield indicates inflation is coming. However, JPowell said that he won't use tools to raise rates to follow the yield curve yet but implied that the FED may extend treasuries maturities should higher yields negatively affect unemployment numbers. Unemployment is still high.
How to ride this out
- JPowell seems to think that the upcoming inflation will be transitional. He also expects the GDP growth to hit 6.5% by the end of this year. In addition, increasing vaccination will boost reopening economies around the world.
Therefore, I expect the US Dollar to be strong for a while before heading lower. This play has the least resistance and current economic conditions support this.
- However, the US Dollar may immediately head lower as more money is introduced into the system. The FED will continue with QE as stimmy cheques hit banks this week.
