Market Commentary -
briefing -
Going into Fed Chair Powell's press conference, the market was nervous about the possibility of Fed Chair Powell sounding more hawkish than he did at the March FOMC press conference. The key thought around that nervous feeling was that Fed Chair Powell would connote the notion that it is increasingly possible that the Fed will elect to raise rates further.
He said (and we quote): "I think it's unlikely that the next policy rate move will be a hike. I would say it's unlikely."
The fact that the stock market and the Treasury market rallied initially on that acknowledgment should come as no surprise. It was (relief) music to their ears.
From our vantage point, Fed Chair Powell worked hard to shoot down the prospect of another rate hike, sticking instead to the view that the Fed will stick with its current policy stance as long as it is appropriate and that a path to cutting rates would follow inflation moving sustainably towards the Fed's 2% target or an unexpected weakening in the labor market.
Fed Chair Powell clarified that a couple of tenths higher in the unemployment rate itself would probably not qualify as a meaningful weakening in the labor market.
By and large, the Fed seems stuck with its current policy stance, which is a byproduct of economic data for a data-dependent Fed that has occasionally run hot, has oftentimes run warm, and has rarely turned cold. Accordingly, it keeps the Fed guessing like the rest of us if the policy stance is truly appropriate or will be revealed in hindsight to be too restrictive or not restrictive enough.
The Fed Chair is convinced that the evidence shows pretty clearly that policy is restrictive and is weighing on demand; however, gaining greater confidence in inflation moving sustainably toward 2%, he said, will take longer than previously expected.
So, the market is stuck with the uncertainty of how long the current policy rate will be in effect, which means it will be stuck with higher rates for longer as an uncertain Fed tries to understand if it has done enough, or needs to do more, to get inflation back to 2%.
The Russell 2000 is up 1.5%; the Dow Jones Industrial Average is up 0.7%; the Nasdaq Composite is up 0.5%; and the S&P 500 is up 0.2%.
