Market Interpretation: Powell Turns Dovish

Analysts believe this means Powell is attempting to downplay inflation risks while emphasizing the urgency of weak employment. Karl Schamotta, Chief Market Strategist at financial institution CORPAY, commented: "The message conveyed by Powell this time is exceptionally dovish, far exceeding market expectations. He emphasized the downside risks in the labor market, somewhat alleviating inflation concerns."

Thomas Hayes, Chairman of hedge fund Great Hill Capital, stated: "Powell's stance is more dovish than expected. He has prepared to take action in September, and unless the employment report is surprisingly strong, a rate cut is almost certain."

Art Hogan, Chief Market Strategist at financial services firm B. Riley Wealth, believes the speech sent a "clear signal": "Powell is willing to support future rate cuts, possibly in September, October, or even December. His focus was not on price pressures from tariffs but on the weakness in the labor market."

At the same time, Powell announced the latest adjustments to the monetary policy framework. In his speech, Powell specifically clarified a key shift in the 2020 revision. At that time, the Fed emphasized that when the unemployment rate is low, there is no need to rush to raise interest rates to prevent inflation. This statement was interpreted as the central bank's willingness to tolerate a certain degree of "overheating" inflation to promote employment. However, Powell reiterated that this does not mean permanently abandoning the ability to implement preemptive rate hikes. "The 2020 revision was never intended to deprive us of the tools to act when the labor market is too strong," he said. He also emphasized that policymakers still agree that interest rates should not be raised rashly based solely on estimates of the long-term natural unemployment rate.

The newly announced adjustments further refine this stance. The Fed removed the previous wording that "decisions will be based on assessments of employment below maximum levels" and replaced it with a more flexible statement: "Employment may at times be above real-time assessments of its maximum level without necessarily posing a risk to price stability." Powell emphasized: "If a tight labor market or other factors pose a threat to price stability, preemptive action may be necessary."

Diane Swonk, Chief Economist at KPMG, commented that this adjustment "gives the Fed more room to maneuver in responding to a more volatile post-pandemic economy."