Why Powell Still Sends Dovish Messages Under Escalating Inflation?

The latest Consumer Price Index (CPI) released by the U.S. reached a 13-year high at 5.4%, indicative of the severe inflation in the country. However, Powell noted that tightening monetary policies was not urgent because of the transient inflation in the hearing of the House of Representatives, thus indicating that taking actions to suppress inflation too early would be a mistake. In addition, he implied that it was not time to scale back the bond purchase. According to a range of analyses, most analysts dont share the same view that inflation is temporary. Some hold the same opinion as I do that Powell is not credible because his view is no longer grounded in reality.

Traders have insufficient faith to go short USD even though DXY has fallen back to some extent due to the dovish messages of Powell. They are afraid of him turning to send hawkish messages as the Federal Reserve (Fed) is fully equipped to delist, according to the statistics of the American economy and inflation. Therefore, traders won‘t go short based on his word of transient inflation. When Canada and New Zealand have announced delisting with their economic and inflation statistics far lower than those of the U.S., why Powell still ignores the reality nationwide and Yellen’s hint about interest-rate hikes twice？ What is his plan？

The situation may be related to the upcoming expiration of Powell‘s tenure. He may take renewal into account, whereas his performance plays an important role in the decision-making of Biden. Perhaps Powell fears that tighter monetary policies at the moment can lead the American stock to a steep slump and adversely impact the economic performance, thus continuing to claim that inflation is temporary and bluster dovish messages out. In this way, he can obtain reappointment as the bull market and economic development are maintained. The plummet of the American stock will risk Powell’s career if Biden is contemplating his renewal of the Fed chair.

According to his counselor, the president hasn‘t decided whether Powell is reappointed, reported by Reuters. The final result will be apparent if Biden only takes the performance of the financial market into account. However, he has been fully aware that the well-performed American stock market is mainly ascribed to the confidence in his upcoming policies instead of Powell’s ability. Hence, Biden may have reservations about Powell‘s competence. If all aforementioned opinions are correct, Powell won’t take real responses to the economic situation and inflation until he knows whether he can continue in office. It is worth noticing that members of the Federal Open Market Committee (FOMC) may discuss the time of delisting in the meeting of the Fed at the end of July because of exacerbating inflation. Consequently, this should be paid attention to by investors, especially those who intend to go short USD.