author avatar
Mark Chandik

Feb 6, 2023

The Two Faces of Powell

Weekly Market Commentary

Last year, the Federal Reserve and Fed Chief Powell’s bite were probably worse than the bark. Rhetoric and commentary were forceful and were matched by a nearly unprecedented series of rate hikes, including four-straight 75 basis point (bp, 1 bp = 0.01%) increases.

Last year, the Fed front-loaded rate hikes. Recently, it has signaled a more mellow pace.

On Wednesday, the Federal Reserve raised its key lending rate, the fed funds rate, by 25 bp to a range of 4.50—4.75%, as expected.

Rhetorically, however, Powell picked up where he left off last year, bringing up the Fed’s 2% annual inflation goal six times in his opening statement. He emphasized it’s too early to declare victory on inflation, fretted over not doing enough, and suggested additional rate increases (plural) are on the horizon.

But he was much more open to acknowledging the recent slowdown in inflation. He conceded that inflation could slow faster than the Fed expects, and seemed less inclined to push back against investor expectations that rates will peak next month.

That’s not the forceful tone we heard from Powell in December and much of 2022.

Meanwhile, investors have been backing away from the idea that we might see a recession this year as the global outlook has improved.

In summary, these are variables that have aided the market in the new year.

Payroll Bonanza

Friday’s announcement from the U.S. Bureau of Labor Statistics of 517,000 net new jobs last month was a shocker and far above the CNBC consensus of 187,000. Further, the jobless rate fell to a 53-year low of 3.4% from 3.5% in January.

In part, the economy is expanding. In part, the huge number of job openings has not yet abated, even as companies in some industries continue to backfill open positions that should have been filled months ago.

One must wonder whether Powell’s modest rhetorical shift would have occurred if the Fed had met after January’s red-hot jobs report.

author avatar
Mark Chandik

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Adviser and Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc., Member FINRA/SIPC. 130 Springside Drive, Suite 300, Akron, OH 44333-2431 800.765.5201 Prosperity Partners and FDP Wealth Management, LLC are separate entities from ValMark Securities, Inc. and Valmark Advisers, Inc. Prosperity Partners, FDP Wealth Management, LLC, ValMark Securities, Inc., Valmark Advisers Inc., and their representatives do not offer tax advice. You should consult your tax professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

Indices are unmanaged and do not incur fees, one cannot directly invest in an index. You should consult your tax professional regarding your individual circumstances. This information is provided by Financial Jumble, LLC. Financial Jumble, LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

RELATED POSTS

Rising Mortgage Rates: A Consequence of Higher Treasury Yields

Mortgage rates have moved sharply higher in recent months, creating a noticeable headwind for homebuyers and homeowners looking to refinance.

When Bad News Is Good News

Released by the US Bureau of Labor Statistics (BLS), September’s nonfarm payroll report came in lighter than expected, and the unemployment rate unexpectedly inched higher.

Rising Bond Yields and the Stock Market

“Bond Selloff Deepens After 30-Year Yield Hits Highest Level Since 2004,” declared Bloomberg News last week. CNBC echoed the sentiment with “10-Year Treasury Yield Rockets to 19-Year High.”

The Fed Hikes Rates: What Investors Should Know

In his opening remarks in a speech last month at the Federal Reserve Bank of Kansas City’s Economic Symposium, Fed Chief Kevin Warsh said, “(Event) planners have some recreation options lined up for later today.

A Hotter August CPI Builds Rate Hike Momentum

First, let’s clarify that any attempt to predict the Federal Reserve’s actions this week is, at best, an educated guess. Fed Chair Kevin Warsh has struck a hawkish tone, and the odds of a quarter-point increase in the fed funds rate are 87%, according to the CME Group. It was 59% on September 4.