Jerome Powell flipped the script

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The market expected the Fed to raise rates by 0.25 points. Powell’s warnings about the economy caught them off guard.

• Fed officials unanimously agreed to raise rates. However, in a post-meeting press conference, Fed Chairman Jerome Powell confirmed that the committee had considered a moratorium on rate hikes.

• Asked by senators if the Treasury Department was considering insuring all bank deposits without congressional approval, Treasury Secretary Janet Yellen said no.

• Professional GameStop surged 35.24% on news that the company posted its first quarterly profit in two years. But analysts warn investors against jumping into stocks as they face long-term headwinds.

The past few Federal Open Market Committee meetings have followed a pattern. The central bank takes a hawkish stance and raises rates aggressively, surprising the markets. Afterwards, Powell’s comments at the press conference will soothe investors, who will take notice of his dovish remarks (probably unintentionally, I imagine, to his chagrin).

This time, Powell flipped the script.

The market expected a 25 basis point rate hike and we got it. All three major indices actually rose after the Fed’s announcement, because being right contributes to certainty. In fact, Quincy Crosby, chief of LPL Financial and his global strategist, said the market is responding well to the expected 25 basis point rate hike.

Then Powell began to speak. Initially, his reassurance that the banking system was healthy and resilient continued to soothe the market. Powell then began talking about “tightening credit terms for households and businesses.” This is “prone to have a large macroeconomic impact”. To make matters worse, these terms were not reflected in stock indices because they “do not necessarily capture lending terms.” This shows the economy could be worse than many thought, writes CNBC’s Patti Domm.

As if trying to prove Powell wrong, the market began to fall about an hour after Powell’s speech and could not stop the fall. By the end of the day, the Dow Jones Industrial Average was down his 1.63%, the S&P 500 down his 1.65%, and the Nasdaq Composite down his 1.6%.

Treasury Secretary Janet Yellen’s statement, contrary to what she said on Tuesday, that the Federal Deposit Insurance Corporation is not considering “blanket insurance” for bank deposits certainly hasn’t helped them. bottom.

The good news is that the Federal Reserve is forecasting just one more rate hike, perhaps another 25 basis points. But if Powell is to be believed, a rate cut is not on the table. Amid the ongoing banking turmoil, the Federal Reserve has issued a warning about the broader economy, and investors may be better off not fighting the Fed.

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