The Sorceror in Chief is propping up the markets. No, really.
Powell’s presentation marked a heel turn from earlier this year. Stocks tanked in July after Powell described the Fed’s first interest rate cut in a decade as a “mid-cycle adjustment,” because investors interpreted the remark as a signal the relief monetary policymakers were providing was only temporary. Now, however, “the cuts look much more permanent,” Grant Thornton chief economist Diane Swonk wrote in a note. “The vote to hold rates unchanged was unanimous, the first time that all agreed on what the Fed should be doing since May 2019.”
And 13 of the 17 members of the Fed officials setting policy indicated they expect the borrowing rate to remain untouched next year, while four projected one hike. As recently as September, nine of the policymakers projected at least one rate hike next year.
Investors had largely priced in the Fed’s decision to hold rates steady, but stocks rallied modestly on Powell’s post-meeting comments. Major indexes snapped a two-day losing streak, with the S&P 500 closing up 0.29 percent and the Dow Jones industrial average climbing 0.11% on the day.
“Markets liked Mr. Powell’s assertion that he would want to see a ‘significant’ and ‘persistent’ increase in inflation before he would want to raise rates, and he again drew attention to the undershoot to the target in recent years,” Pantheon Macroeconomics chief economist Ian Sheperdson wrote in a note. “Mr. Powell’s view is not shared by all his colleagues, given that most of them expect rates to rise slightly over the next three years while core inflation is expected to be little changed. But markets put much more weight on the views of the Chair; that’s probably the right approach.”
Bubbe is as bubble does.