| Powell's mic drop | 
Data: FactSet; Chart: Axios Visuals
It wasn't quite a pivot, but investors were initially pleased to see the Fed's policy statement flick at the possibility that it could slow — or even pause — its rate hikes. Then came the presser, Matt writes.
Driving the news: Markets whipsawed in the aftermath of another 0.75 percentage point rate hike yesterday — the sixth hike of the year. Stocks first rose on the statement, then flopped during and after Fed chair Jerome Powell's post-announcement press conference.
The big picture: The rate hike wasn't the real news.
What first moved the markets was the bit of the Fed's monetary policy statement — released at 2pm ET — that hinted the bank may want to pause and assess how hard this year's series of fast, steep rate increases hit the economy, before carrying on. Context: The housing market, in particular, has been hard hit by the shock of 7% mortgage rates and has been weighing on economic growth. What the statement said: "The Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
Stocks briefly climbed into positive territory, and short-term bond yields fell, suggesting investors interpreted the statement to mean the Fed could start to lighten up on rate hikes, sooner rather than later. Yes, but: Then came the Fed's press conference — at 2:30pm — in which Powell pretty clearly quashed the idea that the central bank would pause rate hikes any time soon.
"It's very premature, in my view, to think about or be talking about pausing our rate hikes," Powell said. "We have a ways to go."That statement helped push bond yields sharply higher as investors reversed their previous bets on the possibility of a pivot or a pause.Stock markets, in turn, sank sharply, with the S&P 500 closing the day down 2.5% in its third consecutive decline. The bottom line: The market wobbles might look like a roller coaster ride to nowhere. But that's kind of missing the point.
The Fed was able to raise the idea of a pivot — putting it on the market's radar — while not committing to any particular course of action. That's a nifty trick to pull off, and will make it easier to bring up the topic again if the bank actually needs to change course. |
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