Risky Assets Rejoice: Bitcoin & Gold Spike and Stocks Hit Record High while Dollar Weakens on Powell’s Dovish Speech

Federal Reserve Chair Jerome Powell didn’t disappoint investors at the much-awaited event of the month as he delivered a dovish speech at the Jackson Hole Symposium on Friday.

Powell did say that he would like the central bank to start reducing its $120 billion a month asset purchases from “this year,” but only to add that investors should not read it as a signal to an imminent hike in interest rates.

“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,” Powell said in his speech.

Fed speakers have been pretty hawkish.

However, Powell's speech leaned dovish, with no concrete tapering date yet (might still get a plan announced in late September though), and a commitment not to raise rates until maximum employment is achieved.

— Lyn Alden (@LynAldenContact) August 27, 2021

In response, both the S&P 500 and Nasdaq hit record highs indicating investors were happy with the Fed chief’s speech. While investors would have some time to adjust to the absence of more liquidity in the coming month, Powell was pretty clear in signaling that there was no rush to tighten policy.

“Powell understands that tapering will happen, but it’s not going to happen sooner than later,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.

Treasury bond yields edged lower, and the dollar weakened to fall to 92.68, while a week back, it was at a nine-month high at 93.57.

Gold, labeled as a safe haven, meanwhile hit 3-weeks highs on Friday, having its best weekly gain since May on the back of no clear timetable for tapering US stimulus spending.

Much like other risky assets, including commodities and oil, cryptocurrencies also went higher.

Thanks Jerome. pic.twitter.com/x5ZXUGlJ6p

— Hsaka (@HsakaTrades) August 27, 2021

Bitcoin went past $49,400 thanks to Powell and is currently hovering around $49k, while Ether is also hovering around $3,250.

SOL, which has a market cap of $27 bln, hit new ATH at $94.36 a few hours back has climbed above Polkadot to claim 8th spot. DOT, a 26.7 bln coin, is meanwhile trading at just above $26, down 47% from its mid-May peak.

The total cryptocurrency market cap is now back at $2.17 trillion.

There are a great number of people on the sidelines fearful of inflation and watching in horror how Powell remains dovish and all numbers continue to just go up.

— Alex Krüger (@krugermacro) August 27, 2021

Tapering has been a hotly debated topic in recent months with a lack of consensus among Fed officials. Robert Kaplan of Dallas, James Bullard of St Louis, and Esther George of Kansas City, and Philadelphia’s Patrick Harker are in favor of “sooner rather than later,” unlike Raphael Bostic of Atlanta division who is concerned about the Delta variant’s impact.

On Friday, Fed Governor Christopher Waller also spoke in favor of moving with paring the purchase “this fall” if there's one more good job report in the 850,000 to 1 million range.

While concerned about the “eye-popping price increases” in the housing market, Waller said a lot of it is fundamentals with millennials coming off the sidelines for the first time in a decade, adding, “I don't think any of this is financial excess.”

While “the financial system works fine. There's gonna be the odd assets of people employed to look at, particularly crypto assets, but I'm not going to bet Financial Stability Policy on crypto assets.”

"I do not see financial excess" – Fed's Waller

I literally have a rock to sell him

— Alex Krüger (@krugermacro) August 27, 2021

During the speech, Powell also noted that “more progress” has been seen in the jobs market, but this is now coinciding with “the further spread of the Delta variant,” and also there’s much ground to cover to reach maximum employment.

“If a central bank tightens policy in response to factors that turn out to be temporary … the ill-timed policy move unnecessarily slows hiring and other economic activity and pushes inflation lower than desired. Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful,” he said.

Overall, the policy is well-positioned, Powell said, adding, the Fed, as always, is prepared to adjust.