Stocks retreated after Jerome Powell said there won’t be any rate cuts if inflation remains too high, while signaling a possible pause in the Federal Reserve’s hiking campaign. Bond yields dropped alongside the US dollar. The S&P 500 edged lower. Treasury two-year rates, which are more sensitive to imminent Fed moves, traded around 3.9%. The greenback retreated for a second day.
“The Fed is dropping hints that we’re nearing the end of the rate hike cycle, even though it wants to maintain some wiggle room in case inflation stops slowing. It’s a fair concern. The good news? If this is the last hike, the S&P 500 has risen a year after six out of the last 9 hiking cycles. But in the three times stocks didn’t climb after hikes, it was because of a recession or market crisis. History doesn’t tell us much, other than the Fed better not screw this up.”
- Jason Pride at Glenmede:
“Potential Fed pause, but no Fed pivot yet. The Fed is telegraphing that additional monetary tightening may or may not occur, but rate cuts do not yet appear to be on the table. The Fed’s leadership is working hard to thread the needle between telegraphing too much tightening while also not agreeing with the market’s rate cut narrative.”
- David Russell at TradeStation:
“The Fed took another step back from its super-hawkish stance by saying they need to determine future policy. They’re setting up a potential pivot by outlining a series of reasons to pause. Given developments in the banking sector and slowing inflation, there’s more chance this was the last hike.”
- Ronald Temple at Lazard:
“No surprises here. The FOMC struck an appropriate balance between taming inflation while avoiding exacerbating stress in the banking system. Assuming banking issues subside, additional rate hikes may be needed, but it’s time for a pause to allow the full effects of tightening to work its way through the economy.”
- Gregory Faranello at AmeriVet Securities:
“The change is language was consistent with our view, and historically the evolution over the prior few meetings, signals the end of a tightening cycle.”
- Peter Boockvar, author of the Boock Report:
“It’s just about time to call a time-out, which implies the game/fight against inflation is still ongoing, but at least they can sit back and determine ‘the extent to which additional policy firming may be appropriate to return inflation to 2% over time’.”
- Florian Ielpo at Lombard Odier Asset Management:
“The Fed is walking a tight line, but it seems to know what it is doing. This should be comforting to markets and investors. This is probably not the end of a volatility fixed income world, but its main enemy (surprise jumbo hikes) is going away, and this is step 1 to significantly better perspective. From an equity perspective, settling rates is probably a good thing, all the more as the earnings season was still showing a resilient economy.”