Opinion: How Powell strayed from the Fed's dovish message and sent markets tumbling

Opinion: How Powell strayed from the Fed’s dovish message and sent markets tumbling

Fed Chairman Jerome Powell is learning on the job. He did not repeat the mistake he made at his July press conference, when he said some things that the markets interpreted as signs that the Fed was wavering in its commitment to fight the crisis. inflation.

The SPX Fellowship,
took the same interpretation of the statement released by the Fed today, but Powell quickly corrected the record.

Recent news: Fed Approves Another Massive Interest Rate Hike, But Also Signals Slowdown Strategy

Here is the key phrase from the statement that market bulls seized on ahead of Powell’s speech: “In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.

Markets initially rallied on the idea that the Fed was signaling the long-awaited pivot in monetary policy. The Dow DJIA,
was up about 300 points.

But Powell immediately dashed those hopes at his press conference, announcing the Fed “still has a long way to go” on interest rates and saying it was premature to talk about a pause in rate hikes. rate. Furthermore, he said it was highly likely that they would have to raise interest rates to a higher level than they expected just six weeks ago as the inflation picture had become “Harder and harder”.

Powell pivoted, but in the hawkish direction. COMP Markets,

Powell acknowledged that the pacifist language in the statement was a necessary concession to the committee’s doves, showing that the Fed is aware that its rate hikes are starting to bite or that inflation measures such as the consumer price index (CPI) and the Personal Consumer Expenditure Price Index (PCE) will be slow to adjust to the housing market slump.

But Powell knew he had to balance that sweet sweetness with warmongering warmth to put the bulls in their place. He doesn’t want the market to start celebrating victory before it’s won.

Powell knows he has to prove to everyone that he really wants to pull off the punch bowl. He wants us to believe wholeheartedly that the Fed is going to fight inflation until it cries uncle.

Rex Nutting is a columnist for MarketWatch who has covered the Fed and the economy for over 25 years.

Learn more about the Fed and the markets

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