ORLANDO, Florida, Sept 18 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Wall Street and world stocks roared to new highs on

Thursday, boosted by the Federal Reserve's interest rate cut the

day before and a 23% surge in Intel ( INTC ) shares, while the dollar and

Treasury yields went against the easier monetary policy shift

and rose too.

More on that below. In my column today I look at how the

Fed's statement, policymakers' revised forecasts and Powell's

guidance highlighted several inconsistencies. Given the unusual

degree of economic uncertainty right now, this is perhaps not

surprising.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. Miran's Fed dissent makes a splash, fails to sway

the

outcome

2. U.S. Fed starts easing path, other major central

banks

on hold

3. Bank of England slows pace of bond rundown and

keeps

rates on hold

4. China's Huawei hypes up chip and computing power

plans

in fresh challenge to Nvidia ( NVDA )

5. Artificial Intelligencer - Tech as pawns in

U.S.-China

trade war

Today's Key Market Moves

* STOCKS: Japan's Nikkei hits record high. Europe up

also,

with tech up 4% for best day since April.

* SHARES/SECTORS: Intel ( INTC ) soars 23%, U.S. tech is

biggest

sector gainer. Rotation into small caps accelerates - Russell

2000 outperforms, +2.5%.

* FX: Dollar rises against nearly all major and EM

currencies. Surges 1.4% vs kiwi after NZ GDP slump, biggest rise

since April. Argentina's parallel peso slides to record low.

* BONDS: Treasury yields rise, lifted by U.S.

jobless

claims. Long end yields up much as 5 bps to steepen the curve.

* COMMODITIES: Gold and oil slip around 0.5%,

weighed down

by stronger dollar.

Today's Talking Points:

* Getting the Intel ( INTC )

First the world's most powerful government invests in

you, then the world's biggest company. Nvidia ( NVDA ) is investing $5

billion in Intel ( INTC ), taking a roughly 4% stake, just weeks after

the White House engineered an extraordinary deal for the federal

government to take a 10% stake in the struggling U.S. chipmaker.

It's a remarkable turnaround in the fortunes of the company

and CEO Lip-Bu Tan, who U.S. President Donald Trump insisted

should resign earlier this year. It also stirs debate over

issues such as Trump's corporate interventions, national

security, U.S.-China rivalry, and tech's place in all of the

above.

* Reading cenbank tea leaves

This week has been a central bank bonanza, topped by the

Federal Reserve's first rate cut in nine months and signal of

more to come. The Fed's messaging may have been a little

incoherent, but economic uncertainty has rarely been higher.

Opinion over the Bank of England's next steps is also

divided, but there is less ambiguity around some others -

Brazil's central bank delivered a "hawkish" hold, and more rate

cuts from Canada are on the cards. All eyes now turn to Japan.

* Trump-Xi call

Trump and Chinese President Xi Jinping speak to each

other on Friday, with trade and tech issues front and center of

discussions. There has been a fair degree of posturing,

signaling and even agreement this week ahead of the call.

A deal on TikTok is close, China's Huawei has broken years

of silence and outlined its chip and computing power plans,

Beijing has ordered tech firms not to buy Nvidia's ( NVDA ) AI chips and

cancel existing orders, but is also ending an antitrust probe

into Google.

Heightened uncertainties feed Fed inconsistencies

The Federal Reserve cut interest rates on Wednesday for the

first time in nine months, arguing the move is necessary to

counter increasing risks to the labor market. The rationale is

sound enough. There's only one problem - it seems to clash with

many of the U.S. central bank's revised economic projections.

In his press conference following a two-day policy meeting,

Fed Chair Jerome Powell stressed that employment risks have

risen substantially in recent months and now outweigh inflation

risks. However, policymakers lowered their median 2026 and 2027

unemployment rate projections by a tenth of a percentage point

to 4.4% and 4.3%, respectively, from three months ago.

How does that add up?

The revised "dot plot" chart of rate projections also showed

that Fed officials now expect three quarter-percentage-point

cuts this year, up from the two projected in June. But at the

same time, officials lifted their median GDP growth projections

for this year and next, while also raising next year's inflation

outlook.

So, to recap, the Fed is cutting rates and expects to

front-load that easing, due to what Powell says are "meaningful"

downside risks to the labor market. Yet officials are also

penciling in lower unemployment rates than they were three

months ago and higher growth and inflation rates.

It's a confusing picture.

'MEETING-BY-MEETING SITUATION'

But this confusion may be the biggest takeaway.

Visibility surrounding the U.S. growth, inflation and

employment outlooks is incredibly low, as Powell acknowledged,

and the range of policymakers' forecasts has widened.

"From the dot plot to the economic forecasts, there are

multiple inconsistencies that raise eyebrows," notes Ron Temple,

chief market strategist at Lazard. "The key message ... is that

there is not a shared outlook among the FOMC (Federal Open

Market Committee) participants."

These inconsistencies may have been exacerbated by the

addition of Stephen Miran, the head of President Donald Trump's

Council of Economic Advisers, to the Fed's Board of Governors.

His was the lone dissenting voice, calling for a 50-basis-point

cut, and he also appears to have tipped the scale in favor of

projections of more short-term easing.

At the same time, few officials - perhaps with the exception

of Miran - seem to hold these views with any real conviction.

"We're in a meeting-by-meeting situation," Powell told

reporters, an indication that guidance offered by the dot plot

is pretty loose. So it's unclear how committed the Fed even is

to this new policy shift out of restrictive territory into a

more neutral place.

(IN)VISIBILITY

To be fair to Powell and his colleagues, it is increasingly

difficult to interpret the incoming data. The economic models

and playbooks of yesteryear often no longer seem relevant to

today's economy, as has been proven time and again this year.

Just look at the unemployment rate. Labor market supply and

demand are in broad balance, which is why the unemployment rate

remains so low at 4.3%. But that's only because the alarming

slump in hiring has been offset by the Trump administration's

immigration policies and deportations, which are crushing labor

supply.

The "breakeven" rate of monthly payrolls growth needed to

keep the unemployment rate steady is perhaps around 50,000 now,

or even lower, down from around 150,000 earlier this year. The

economy only added 22,000 jobs in August.

So it's a "curious balance", according to Powell. And

perhaps a dangerously unstable one. If companies' low hiring

turns to outright firing, the unemployment rate could shoot

higher, even if labor supply remains tight.

Visibility on the inflation side isn't much better.

Policymakers' assessment that import tariffs will deliver a

one-off price hit with no lasting inflationary effects is based

more on hope than expectation. U.S. tariffs are the highest in a

century, so this is new territory for policymakers today, and

uncertainty surrounding the effect on consumer prices remains

substantial.

As a result, there is little clarity on either side of the

Fed's mandate. The central bank is nevertheless choosing to put

aside inflation fears and focus more on the upside risks to

unemployment. Is there justification for this approach?

Certainly. But is it the right move? Who knows.

"Tensions within the Fed's dual mandate of price stability

and maximum sustainable employment are at the heart of several

inconsistencies inside the Fed's rate, growth, inflation and

unemployment forecasts," says Joe Brusuelas, chief economist at

RSM.

As Powell himself said, this is a "particularly challenging

time" for the Fed, as "there are no risk-free paths now" for

policymakers. The same can be said for investors.

What could move markets tomorrow?

* Japan interest rate decision

* Japan inflation (August)

* UK retail sales (August)

* UK public sector finances (August)

* European Central Bank president Christine Lagarde speaks

* Germany producer price inflation (July)

* Quarterly derivatives expiry - "quadruple witching" - in

U.S.

and Europe

* U.S. Fed Governor Stephen Miran speaks

* Canada retail sales (July)

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