When Federal Reserve Chairman Jerome Powell speaks, the stock market listens and it didn’t like what Powell said at his Jan. 26 press conference. Stocks fell off almost immediately.
The Fed will most likely hike interest in March and end its bond purchases in March, Powell said during a press conference to issue the Federal Open Market Committee (FOMC) statement.
The FOMC is a committee within the Federal Reserve System that oversees U.S. open market operations (OMO). OMO refers to a central bank buying or selling short-term Treasuries and other securities in the open market to influence the money supply.
“The committee is of a mind to raise the federal funds rate at the March meeting assuming that the conditions are appropriate for doing so,” Powell said, doubling down on a policy statement from the central bank’s Federal Open Market Committee that only said rates would rise “soon.”
With inflation high and with no end in sight, the Fed also plans to clamp down on credit and end its support to the U.S. economy during the coronavirus pandemic, Reuters reported.
The stock market reacted. Major averages hit new session lows at around 3:20 p.m. Feb. 26 as traders evaluated Powell’s comments on monetary policy and the possibility for even more inflation in the future, CNBC reported.
The Dow dropped about 350 points or 1 percent. The S&P 500 and Nasdaq Composite fell 0.9 percent and 0.7 percent, respectively.
Twitter users responded.
“Powell was asked point blank about a hike of 50 basis points and declined to take a direct stance i.e. all options are on the table. That’s pretty hawkish, if you asked me,” tweeted Bloomberg Business senior editor Edward Harrison (@edwardnh).
“Here’s the problem: The Fed having been wrong & being behind the curve, yet afraid to upset markets further with decisive & quick action, is making things worse as it prolongs the damage from inflation becoming more entrenched. It’s like waiting for cancer to metastasize,” tweeted NorthmanTrader founder Sven Henrich (@NorthmanTrader).
Some said Powell’s take on the economy constricted reality.
“Powell claims the economy is much stronger now that it was the last time the #Fed started raising rates, so the #FOMC will adjust its policy accordingly. But the economy isn’t stronger, it’s just a much bigger bubble. Even a smaller pin would produce a larger financial crisis!” tweeted economist Peter Schiff (@PeterSchiff), CEO and chief global strategist of Euro Pacific Capital.
Economist Mohamed A. El-Erian noted Powell’s effect on the stock market.
“The more #Fed Chair Powell tries to explain the policy outlook in the press conference, the more #stocks sell off and yields go up. The Dow has gone negative, the NASDAQ more than halved its gain pre press conference, 10-year yield has traded up to 1.85%, and the 2-year to 1.09%,” tweeted El-Erian, president of Queens’ College, Cambridge.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
Photos: Traders Aaron Ford, left, and John Panin work at the New York Stock Exchange, Sept. 28, 2021. (AP Photo/Richard Drew)