Fed lost the day and risk assets headed for the moon
Then his press conference began, and the more he spoke, the more the market rallied. The Nasdaq Composite ended the day up 2% exactly, while bond yields fell
By the time the dust settled, the market was even more convinced of significant easing before this year is out.
Arguably, his critical mistake came early in the Q&A, when he was asked if he was worried that financial conditions had eased. This appeared to be a straightforward opportunity for him to say “yes” and browbeat the market. He didn’t. Instead, remarkably, he said that financial conditions had tightened. They haven’t.
John Authers Bloomberg 2 februari 2023
For the Fed, the apparent disconnect between what it is saying and what investors think it will do poses a problem.
The drop in long-term interest rates since November—reflective of rate-cut expectations—has made credit conditions easier, bolstering the economy when the Fed is trying to contain it.
The same goes for this year’s rally in stock prices. Indeed, minutes of the Fed’s December meeting showed officials worrying that market rallies could hinder their inflation fight, posing the risk that they might have to raise rates even more to cool the economy than would otherwise be necessary.
What the Fed actually does will depend on what happens with inflation and employment in the months ahead, so it is understandable that it is reluctant to throw in the towel just yet to investors on rates.
But there is also a danger that investors increasingly see any hawkish talk from the central bank as mere jawboning, and think the Fed itself doesn’t believe the things it is saying.
WSJ 1 February 2023
https://www.wsj.com/articles/the-fed-fights-the-fed-11675284624
According to Wall Street, Powell has just announced that happy days are here again.
It feels like it’s 2019 all over again. Now the slightly less good news.
None of this Wall Street euphoria seemed to reflect what Powell actually said during his press conference.
MarketWatch 1 February 2023
https://www.marketwatch.com/story/wall-street-to-jerome-powell-we-dont-believe-you-11675298311
Market Versus Real World
John Authers 30 januari 2023
https://englundmacro.blogspot.com/2023/01/market-versus-real-world.html
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