Jerome Powell really threw us all for a loop yesterday. The Fed chairman had previously hinted that he might slow down the pace at which rate hikes are being made.
The investors felt a bit duped. Stocks rose yesterday ahead of Powell's press conference at 2:30pm, but then fell after Powell stated that the economy still has some way to go.
Max Gokhman (an investor based in California) summarized Powell's mixed signals “as if investors came to haunted houses and got candy, but after they unwrapped the candy, saw that it was soggy broccoli.”
Powell believes inflation will rise to a higher point than originally thought. Powell believes it is too early to discuss a pause in rate increases. Even if inflation lasts longer than most people think, the Fed is determined to slow down the economy in order to contain it.
The economic slowdown is starting to affect Americans. The S&P 500 has dropped almost 22% over the past year. Consumer spending is also slowing down and CEOs are preparing for a recession. According to yesterday's Fed comments, the economy can expect further pain in the next months.
The Takeaway: Investors wanted a quick Fed “pivot”, and many economists and business leaders urged the Fed to slow down rate hikes. JPow's statements this year have had an increasing influence on the stock market. There will be more ups than downs as inflation is relentlessly fought by the Fed.