I think a 5% to 10% market correction would be healthy, but who knows whether Powell's press conference was cautious enough to make it happen - at least he squelched any unrealistic expectations for 6 rate cuts this year. I think that's out the window !
Market Briefing: Fed cools down some of the rate-cut fever
Fed Chair Powell's press conference began at 2:30 p.m. ET and concluded at 3:20 p.m. ET. It was 50 minutes of edge-of-your-seat listening, because market participants desperately wanted to hear Fed Chair Powell's thoughts on the policy setting.
If there was one comment by Fed Chair Powell that resonated for the market in this press conference, it was this:
"Based on the meeting today, I would tell you that I don't think it is likely that the Committee will reach a level of confidence by the time of the March meeting to identify March at as the time to do that (cut rates), but that is to be seen. So, I wouldn't call it, you know -- when you ask me about in the near term, I am hearing that as March. I would say, I don't think that is -- it is probably not the most likely case, or what we would call the base case."
And there you have it. A month ago, the fed funds futures market placed an 88.5% probability on the first rate cut happening at the March meeting. That probability now sits at 37.5%, according to the CME FedWatch Tool, down from 56.4% just before the policy directive was released at 2:00 p.m. ET.
Now, the market was already having some doubts that there would be a rate cut in March, so the headline wasn't as shocking as it might have been otherwise. Still, the acknowledgment by the Fed chair that a rate cut at the March meeting is not the base case has understandably cooled off some of the rate-cut fever.
The May meeting is unmistakably the frontrunner for the first rate cut, with the probability of a 25-basis points cut sitting at 90.6%.
Accordingly, the market will have to be a little more patient, because the Fed believes it needs to be a little more patient with its inflation review. That was another unmistakable conclusion from the directive and Fed Chair Powell's comments.
The Dow Jones Industrial Average is down 0.8%; the Russell 2000 and S&P 500 are down 1.4%; and the Nasdaq Composite is down 2.0%.
