Is the «Hawkish Pause» Just Market Hype?

Key Points:

• Market skepticism about the effectiveness of a «hawkish pause» by the US Fed.
• Jerome Powell’s recent remarks on potential rate hikes and market reactions.
• Australian dollar rises, USD declines against the yen.

The term «hawkish pause» may be overstated in the current market context, potentially used to support USD strength despite doubts about the Federal Reserve’s commitment to aggressive rate hikes. Critics question whether the Fed can decisively resume rate hikes if needed, given past hesitations and current market conditions.

Jerome Powell addressed these concerns, noting that the committee has not yet discussed its December decision but suggested it would not be difficult to resume hikes if required. However, with two more inflation and labor market reports due before the year’s end, uncertainty remains.

In response to these dynamics, the Australian dollar has gained 0.94%, while the USD has dropped over 0.5% against the yen. The EUR/USD has seen a modest increase of 0.16%, indicating mixed market reactions to the Fed’s stance and the broader economic outlook.