Checking the Powell-meter… When J. Powell speaks, investors listen. Yesterday the Fed chair sat down for a midday Q&A sesh in DC. It wasn’t as big a moment as a Fed meeting, but after last week’s killer jobs report, investors were eager for any clues about a policy shift — especially after Atlanta’s Fed chief said that a higher peak rate was on the table.
- Thing Powell said that the market liked: J-Pow acknowledged that “disinflation has begun” in the goods sector, which makes up a quarter of the US economy.
- What the market didn’t like: If the labor market continues strengthening and inflation climbs further, Powell said the Fed might need to make higher-than-expected hikes.
- Bike hikes: When asked how he de-stresses, Powell said, “I like to ride my bike.”
Climbing up that rate hill… Mixed economic data, coupled with Fed comments, has been giving the market whiplash. Stocks popped last week after J-Pow acknowledged that inflation is cooling at the Fed’s meeting (the first time he mentioned “disinflationary” trends). But on Friday stocks fell after news that the US had added a shockingly strong 517K jobs last month while unemployment fell to 3.4% — its lowest level in 53 years. When the Fed meets in March, it’ll have yet another month of jobs and inflation data to inform its next hike decision.
When optimism’s high, disappointment’s likely… Investors are obsessed with the Fed because rising rates tend to lower stock prices, discourage spending, and cool economic growth (aka: the Fed’s goal). The market may have gotten ahead of itself, but now it’s pricing in higher expectations of Fed tightening. Yesterday Powell said that reaching acceptable inflation levels is going to take a while: “My guess is it will take certainly into not just this year, but next year to get down close to 2%.”