Powell Keeps Hawks At Bay, Signals Fed Is Near Destination: Stocks Rebound, S&P 500 Erases Losses

In a highly anticipated press conference Wednesday, Federal Reserve Chair Jerome Powell provided insights into the central bank’s monetary policy decisions and shed light on the path ahead.

The day saw the Federal Reserve holding rates steady at 5%-5.25%, for the first time since March 2022. Markets, however, were hit by the FOMC median projections that showed interest rates rising to 5.6% in 2023.

Powell’s June Press Conference: Key Takeaways

“We are not so far away from the destination on fed funds rates. We have moved much closer to sufficiently restrictive,” Powell remarked, acknowledging the progress made to quell inflation.

Reflecting on the speed of interest rate hikes, Powell said “it’s reasonable to moderate and slow the pace,” explaining that a more measured approach would provide the Fed with additional information to make well-informed decisions while allowing the economy to adapt.

When discussing the June decision, Powell said it pertained only to the current meeting. The Fed will carefully analyze evolving data and economic outlook before making any further moves, he said adding that the upcoming July meeting will be critical in shaping future policy actions.

Regarding the higher revision to the Fed funds rate in 2023, as indicated by the June dot plot, Powell said “nearly all Fed members viewed that further rate increases may be appropriate.”

He stressed the importance of data-driven decisions, cautioning that the projected rate of 5.6% could come in higher or lower. “I don’t have that confidence in saying where the federal funds rate will be that far in advance,” he admitted, deflating hawkish expectations.

Read now: Average American Wages Now Outpace Inflation: A Cause For Pausing Fed Rate Hikes?

Powell addressed the state of the labor market, acknowledging tight conditions but also highlighting signs of improving demand-supply dynamics. This balance could help alleviate price pressures and contain wage growth, contributing to the overall stability of the economy, he said. “To bring inflation back to goal, we need a period of below-trend growth and some softening of labor market conditions,” he emphasized.

Powell admitted that progress on core inflation has been limited, with risks still skewed to the upside. He emphasized the need for “credible evidence that inflation has topped out and is coming down decisively.”

Pushing back against market expectations, Powell clarified that rate cuts are not on the immediate horizon. “Not a single person on the board wrote down a rate cut this year,” he said.

The Fed’s discussions about potential rate cuts are focused on a time frame of “a couple of years out,” he said.

When asked about the Committee’s confidence in achieving a soft landing, the Fed chair remarked on the unified approach taken by the board, and stated that “we will do whatever it takes to get down to 2%.”

Market Reacts To Powell: Stocks Recover Losses

The stock market partially recovered losses incurred following the publication of the Fed’s policy statement and economic forecasts for June.

The S&P 500 index, as tracked by the SPDR S&P 500 ETF Trust SPY, reclaimed 4,370, coming back to levels prior to the Fed statement.

Chart: S&P 500 Intraday Price Action Wednesday

Photo courtesy of the Federal Reserve.