FX: Powell will no longer give Wall Street "gifts" on resolution day

For investors,FXTForex sees 2022 as a brutal year, but for most of the year, at least one investment is sure to make money.All they have to do is buy stocks and bonds seconds before Federal Reserve Chairperson Jerome Powell's speech at a press conference following the interest rate decision, and sell them when he finishes speaking.

Last March, when the Federal Reserve began raising interest rates, the stock market rose an astounding 1.6% in those 60 minutes. Then they continued to raise interest rates, rising 2% after the May meeting, 2% after the June rate hike, and 1.6% after the July rate hike.

No matter what Powell said, traders thought he was dovish, or at least less hawkish than the FOMC statement they had just read. That frenzy suddenly resurfaced after February's interest rate decision. The stock market rallied another 1.6%. Bonds performed similarly, albeit to a lesser extent.

But now, the days of easy money after interest rate decisions seem to be over。

Excluding the gains in February, Powell's press conferences were mostly small declines, including today.When he started speaking, the stock market immediately rose, but fell back a few minutes laterThis is bad news for companies that trade quickly and heavily quantify

But there's a bigger, more important signal here that the wild swings that erupted across the market at the start of the rate hike cycle are slowly fading awayWith inflation cooling and the economy still not in recession, the Federal Reserve is nearing the end of rate hikesFuture interest rates are far more predictable than when Powell urgently orchestrated the biggest rate hike in decades. Traders have less room to misinterpret his remarks.

"The rate hike cycle is most likely coming to an end," said Ed Al-Hussainy, global rates strategist at Columbia Threadneedle. "So do you still want to use the 2022 playbook? I'm not going to do that.I'll get my profits back and move on.。”

Much of the criticism has been directed at Powell for failing to communicate clearly the Fed's determination to contain inflation.But no one really knows why traders kept pushing up asset prices as he spokeThe market has many interpretations of this, many of which are interrelated

One theory is that...Powell is more dovish than the rate-setting FOMC(According to a new survey of economists by foreign media, Powell is actually a centrist.) Or, he is formulating his own answer to appease the doves in the FOMC and get them on his side.

Another theory holds that,Powell, prompted by certain questions from reporters, kept using words such as disinflation and financial conditions, thus triggering an algorithmic buy order。

However, the most popular explanation is that...Investors simply listen to what they want to hear。

Many of them have made their fortunes in the bull market in stocks and bonds over the past two decades, and they are eager to return to the lowest interest rates that drove that yield. So they latched on to any word that seemed to indicate that the rate hike cycle was coming to an end or that a rate cut was imminent.Even if Powell had no intention of sending such a signal at all。

"It's some kind of confirmation bias," said Tim Duy, chief US economist at SGH Macro Advisors. "Market participants want this [rate hikes] to end. They want to do it by telling a dovish story."