Federal Reserve Chairman Jerome Powell’s speech at the virtually held Jackson Hole symposium left Wall Street applauding the idea that rate hikes were still on the horizon.
Market watchers had circled Friday’s speech as one that could potentially pave the way for the Fed to announce that it was cutting asset purchases and planning to raise interest rates.
Instead, they were given a lackluster assessment of when the central bank’s take-off might begin.
WEAKENING OF THE FED’S POWELL SIGNALS MAY BEGIN THIS YEAR, BUT Suggests a rate hike
“We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2% and is in. goes from moderately exceeding 2% for a while. “Said Powell on Friday. “We have a long way to go to achieve maximum jobs, and time will tell if we have hit 2% inflation on a sustainable basis. “
The Federal Reserve at the start of the pandemic cut interest rates to near zero and pledged to buy an unlimited number of assets in order to cushion the U.S. economy amid its sharpest downturn in the world. ‘after war.
The comments sent stocks skyrocketing and lower bond yields as traders lowered their expectations of when the Fed might start raising interest rates.
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Federal funds futures traded on the Chicago Mercantile Exchange show traders are now pricing the first interest rate hike to come in January 2023, a month later than before the speech.
Powell’s “uber-dovish rhetoric” reinforced the idea that “cut doesn’t mean squeeze,” said Cliff Hodge, chief investment officer at Cornerstone Wealth Management.
After Friday’s speech, Wall Street economists remained convinced the Fed would announce its cut schedule before the end of the year as long as job gains stay on track and the delta variant doesn’t derail economic recovery.
“President Powell’s comments are consistent with our basic view that the reduction will be announced at the November meeting and begin mid-month,” wrote Bank of America economist Michelle Meyer.
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Unlike 2013, when the Fed’s tapering announcement triggered a 5.6% month-on-month drop in the S&P 500, the upcoming decision is “eagerly awaited and therefore embedded in the markets,” said David Bahnsen, Managing Director. investments at The Bahnsen Group.
Tapering is “at worst a contributor to short-term volatility and the provocation of algorithmic trading,” he said.