Morning from Copenhagen. 

Powell was surprisingly more aligned with the Trump administration compared to what I initially thought, given that Trump and his ilk has been well underway with destroying the well maneuvered soft landing that the Fed was very close to achieving a couple of months ago, and while there was definitely some unhappiness behind his answers to tariff questions yesterday, it was very clear that the overall goal of yesterday’s presser was to be neutral, as that would have given the Fed the leeway to continue to be data dependent. 

Powell initially did a decent job trying to stay neutral, navigating the upwards shifting dot plot and the fact that they haven’t moved the amount of projected cuts this year despite their growth target ticking down 40bp for Real GDP, but as the press conference continued, Powell ended up being net dovish, which explains the reaction in bond yields, equities etc.

Powell labeled the increasing inflation and slowing growth as net zero in terms of their decision making, but the Fed is clearly more worried about growth than inflation, as growth was the overarching touching point yesterday. While the intention of that focus was not to make markets interpret him as dovish, as he tried to label growth as strong in hard data, markets clearly interpreted the enhanced focus on growth as dovish, as Powell hinted of the Fed stepping in if growth turns south – and everyone can see that a growth slowdown is the base case, no matter what Fed officials have to say. 

There were 2 critical points yesterday that needs to be highlighted, as this will likely set the stage for how monetary policy is conducted going forward: