This time, his dovish stance is much more pronounced than expected.
In fact, many people have long anticipated a 25 basis point rate cut in September, as the latest new job data has shrunk to one-tenth of previous estimates, and the signals of a cooling labor market are very clear.


But the style of this speech is completely different from what I had previously thought. I originally thought Powell would speak more balanced, or even lean hawkish— for example, saying to wait for subsequent data before making decisions, leaving room for maneuver.


After all, the impact of tariffs on inflation has already become apparent. If they adopt a dovish stance now, it is very likely that inflation will rise again. Therefore, my previous judgment was that he would not make his statements too loose.


But the actual content of the speech was particularly surprising. Powell highlighted two key pieces of information:


First, he explicitly stated that inflation is temporary and mainly driven by tariffs, and as long as the labor market slows down, inflation won't last long. He even mentioned that the speed of inflation increase will not be faster than the speed of labor decline.
This conclusion is very clear: between rising inflation and shrinking employment, the Federal Reserve prioritizes protecting employment and believes inflation is only a short-term issue. This means that as long as new job growth declines sharply or the employment rate falls, the Federal Reserve is likely to initiate rate cuts.


This is a very strong dovish signal, indicating that not only may there be more than a 25 basis point cut in September, but there may not only be two cuts this year, and future movements will depend entirely on the labor market situation.
This kind of statement has never been made before. In the past, the Federal Reserve would not make definitive statements in order to maintain policy flexibility. This time, it is the first time they have clearly placed employment ahead of inflation. This means that as long as employment data worsens, the probability of rate cuts will significantly increase.


Second, he hardly mentioned the 2% inflation target throughout the speech, only briefly mentioning it at the end.
It should be noted that the Federal Reserve has been calling the 2% inflation target a core goal for seven or eight years. Now, suddenly starting to mention 'flexible inflation targets' is clearly paving the way for subsequent rate cuts. This means that even if inflation rises after the rate cuts, the Federal Reserve will not maintain high interest rates to suppress inflation.


From the Federal Reserve's perspective, inflation will eventually decline, and there is no need to keep the economy in a tight state for short-term inflation data. In other words, they are already prepared for the subsequent rebound in inflation.
Of course, the Federal Reserve will still say some formal things, like finding a balance between employment and inflation, but from the above two points, it can be seen that they have already shifted from a cautious observation phase to a phase of preparing for a series of rate cuts— even the potential inflation issues after the rate cuts have been theoretically laid out in advance.


It's no wonder that the stock market and gold have surged so sharply tonight while the dollar has fallen so drastically.
However, I feel that the Federal Reserve's statements this time are a bit too optimistic. The U.S. really cannot withstand a rapid decline of the dollar. Once it falls too quickly, U.S. Treasury yields will also drop rapidly, and for the sake of financial stability, the Federal Reserve may have to issue hawkish messages again.


Tonight, the dollar fell by 1%. If it continues to drop like this for another five days, the Federal Reserve will definitely have to come out and speak to stabilize the situation.
If traders feel next week that the door to rate cuts is completely open and start to confidently short the dollar, it won't be long before the dollar may experience a substantial decline.


Moreover, Powell's speech this time is so aggressive that it feels a bit like trying to please Trump, which objectively diminishes its credibility.


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