Powell is singularly focused on inflation reduction, disregarding fallout from his strong steps

Powell is singularly focused on inflation reduction, disregarding fallout from his strong steps

Ever since Chairman Jerome Powell delivered a keynote speech at the Jackson Hole economic symposium his tone and content had greatly become an exceedingly strong message that he will focus all of his attention on bringing inflation which is at a 40 year high to an acceptable target of 2%.

Yesterday many analysts were anticipating that Chairman Powell would loosen up on the rain so to speak to either take a pause for a bit or to begin the process of rate stability leading to rate reduction. However, nothing could be further from the truth as Chairman Powell gave a stern message which varies greatly from the headlines of yesterday by analyst anticipating that he would pivot into a much milder approach.

His message was once again on point as he reiterated his main goals repeating them on numerous occasions during today’s press conference.

·       I summarize what the Fed's current policy means for stock investors and those with significant fixed income holdings, including those with maturing 3 year CDs.

• Inflation has not come down as much as the Fed board had hoped so they will keep on raising rates. The damage done by not raising enough is far worse than of raising too much as they can always correct over-tightening.

What others said:

No hints of dovishness to indicate the Fed may be poised to pause,’ says Brandywine Global’s Jack McIntyre

Federal Reserve Chair Jerome Powell’s comments were quite hawkish, which means the Fed still has a way to go to fight inflation, said Jack McIntyre, portfolio manager at Brandywine lobal. The level of interest rates will also be higher than previously expected, he said. “There were no hints of dovishness to indicate the Fed may be poised to pause,” McIntyre pointed out. The central bank saying it would consider cumulative tightening of monetary policy suggests it is leaving the door open to slow down the pace of hikes, not end them. “Today was all about—and only about—giving the Fed flexibility or optionality to back off their path of 75 [basis point] hikes,” McIntyre said. “CPI reports, labor reports, and the ongoing impact of China’s zero-COVID policy on global growth are all more important than any signal of Fed action. From this point on, we should think slower and steady…until something breaks.”  — Michelle Fox

Powell says path to soft landing has ‘narrowed’

Powell said that while he believes it is “still possible” for the Fed to achieve a soft landing, the path has “narrowed.” “We’ve always said it was going to be difficult, but to the extent rates have to go higher and stay higher for longer it becomes harder to see the path. It’s narrowed. I would say the path has narrowed over the course of the last year,” Powell said. — Jesse Pound

Powell more hawkish than expected, futures price in higher rate for Fed

Traders bet the Fed could raise the fed funds rates to a high of 5.05%, before stopping its current rate hiking cycle. The May contract reached that level after dipping to 4.93% after the Fed’s policy statement opened the door to a potential reduction in the size of interest rate hikes. The Fed raised its target rate by three-quartes of a point Wednesday afternoon. But a hawkish Fed Chair Jerome Powell, who spoke a half hour after the Fed statement, sent Treasury yields and fed funds futures higher. “Powell thinks the bias is they should tighten more than they would otherwise think, just so they should take out some insurance,” said Michael Schumacher of Wells Fargo. “His quote was that it’s very premature to think about pausing. They’re not going to  pause anytime soon.”  Stocks sold off after initially gaining after the Fed statement. Stocks fell as the 2-year yield reach a high of 4.59% during Powell’s comments. The 2-year closely reflects Fed policy. “It’s pretty steadfastly hawkish so far. It’s not really what I expected. He’s hanging in there,” said Schumacher. — Patti Domm

Fed ‘can afford to slow the pace of rate hikes,’ Capital Economics says

Changes to the Federal Reserve’s post-meeting statement along with another 0.75 percentage point interest rate hike Wednesday should be enough to indicate that the central bank is getting ready to slow down the pace of interest rate increases, according to Capital Economics. With the increase that takes the fed funds rate to a range of 3.75%-4%, the Fed “can afford to slow the pace of rate hikes” as it assesses the hikes approved this year, wrote Paul Ashworth, Capital’s chief North America economist. “Barring another upside inflation surprise in the October and November CPI reports, which we can’t completely rule out, it looks like the Fed is laying the groundwork to shift down to a 50bp hike in December and, if we’re right that core inflation will start to show signs of slowing soon, a 25bp rate hike at the January meeting next year,” Ashworth added.Fed Chairman Jerome Powell said at his post-meeting news conference that slowing the pace of rate hikes could be discussed at the December or January meetings. — Jeff Cox

Wishing you as always good trading,

Gary S. Wagner