After it became clear that the Fed is going to cut rates in July, market expectations had a room to develop only towards the most bearish outcome (50 bp cut), pressuring dollar and pushing safe heavens and bonds higher. Yet another run-of-the-mill John Williams speech on Thursday became a sheer surprise, aiding bearish rumors to thrive with the following “recipe” to combat next recession:

"First, take swift action when faced with adverse economic conditions”

 “Second, keep interest rates lower for longer.”

And third, adapt monetary policy strategies to succeed in the context of low r-star and the ZLB."

(it is not entirely clear what Williams meant by adapting).

The first two statements were enough to promptly change the market consensus to the rate cut by 50 bp. However, the Fed representative later issued a statement a la “it was a joke” as the unwelcome jump in market expectations prematurely limited the room for maneuver. There are still two weeks before the FOMC meeting, taking into account the incoming data, the unpredictable Trump, the ECB decision and other events, eventually only 25 bp cut can be justified, which will disappoint markets and cause volatility. These are completely unnecessary policy costs for the Fed and Williams in this regard was too much outspoken and unusually plain in his statements.

Williams sounded so ominous that the odds for 50 bp rate cut jumped from 30 to 70%! The Fed spokesman “ran to the first reporter he could find” to report a communication failure, stating that “Williams recapped 20 years of academic research in his speech. It was not about his views in monetary policy and upcoming decisions” Well, if this is so, then Williams simply has an “outstanding ability” to pick time and topic for speech. Or... was it intended open mouth operation?

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As a result, the chances of two outcomes of the July meeting became equal, but the imprint on the foreign exchange market and safe assets remained. Gold reached a five-year high, trading on Friday at around $1,445 per troy ounce, the yield on 10-year US T-notes was down to 2.026%. The reaction of the dollar was less pronounced, a small amplitude of the fall says that there is no place to run. Oil is rising due to exacerbating tensions in the Strait of Hormuz and expectations of the Fed's easing policy, but one should keep abreast of US negotiations with Iran, the news about which appeared recently. Therefore, the rally in oil prices may be fragile, as it is now due solely to temporary factors. The cryptocurrency market also rose, following the rally in fixed income markets of developed economies, but Congress’s reluctance to share monetary power with the Facebook cryptocurrency project suggests that the legal status of decentralized cryptocurrencies as a fundamental growth driver can be forgotten for the near term.