Powell's shift to a 'dovish' stance this time is less about an assessment of the economic situation and more about the results of political maneuvering. On the Trump administration's side, there are plans to install four of their own people as directors at the Federal Reserve, alongside public pressure demanding Cook's resignation. This combination of actions puts the Federal Reserve's independence in its biggest trouble since the Volcker era of the 1980s.
What does this policy shift mean for us investors? In the short term, we can leverage the expectations of interest rate cuts to make some gains from asset rebounds; but in the long term, we need to be wary of the risks of 'stagflation'—physical assets like gold and copper may be more worthwhile than U.S. Treasuries, while high-dividend sectors should be cautious of the risk of downward earnings adjustments.
As for Powell himself, the legacy he leaves in history will depend on whether he can avoid letting the current 'preventive interest rate cuts' become the catalyst for triggering systemic risks before he steps down in May next year.
