Yahoo Finance Live anchors break down how stocks are trading after Fed Chair Powell remarked that a soft landing on inflation isn't guaranteed.
- Let's take a look at markets as we start the 11:00 AM hour here on Wall Street. You could see a bit of a mixed story here when we take a look at the Dow up about just a 1/3 of a percent. S&P 500 and the NASDAQ essentially unchanged from yesterday. Although we did start the day all of these indexes in the green. But we saw a little bit of a flip as the Fed Chairman Jerome Powell began talking at a European Central Bank event. A lot of eyes on that.
And that's kind of the first thing that I'm watching this morning, Akiko, when we take a look at just what the Fed chairman said with regards to his outlook. Kind of a downgrade from what we've heard from the Fed chairman as of late. He said that, look, there's probably a strong likelihood that conditions could worsen as the Federal Reserve tries to raise interest rates to get ahead of inflation. But want to play just a specific clip with regards to what he said on the idea of a soft landing, which would be keeping unemployment low while also addressing inflation. Take a listen to what he said.
JEROME POWELL: There's no guarantee that we can do that. It's obviously something that's going to be quite challenging. And I would also say that the events of the last few months have made it significantly more challenging, thinking there particularly of the war in Ukraine, which has added tremendously to inflationary pressures around food, and energy, commodities, and agricultural chemicals, and industrial chemicals and things like that. So it's gotten harder. The pathways have gotten narrower. Nonetheless, that is our aim. And we believe that there are pathways to achieve that.
- And he added, highly likely to involve some pain this process, which seems to be an implicit acknowledgment maybe hard landing.
- Yeah. I mean, it feels like the Fed chair is really trying to manage expectations here because we were talking about this off camera. I mean, it does feel like a significant-- I don't if we'd call it a downgrade. But just a different tone from what we heard just several months ago. And a little different from what we heard from the other Fed officials yesterday who said that recession is not inevitable.
- Yeah. And I think that what's really interesting is just to see the market reaction here. I mean, again, you don't want to attribute any one thing to anything. But you can pretty strongly say a lot of sharp market action could be due to anything the Fed chairman says as the head of the most important central bank around the world. And we saw the Dow and equities across the board kind of jump a little bit after the commentary that he basically said there is a probability that the Fed is acknowledging of a situation where they fail to get inflation down while also keeping unemployment at the near 50-year lows that we're seeing right now.
Why would markets see that as a good thing? Well, maybe it's because markets have already priced in what would be the worst outcome scenario here and that if the Fed does indeed see a closer recession in the mirror, then maybe they won't raise rates as aggressively as markets have already priced in. That sets a terminal rate and perhaps gets a little bit of settling in what has been a pretty volatile market year to date.
- I mean, I guess if we're talking about expectations here, I mean, the expectation for the next one is still 75 basis points though right?
- Yeah. Well, I mean, there's four weeks between now and then. A lot can happen. We're going to get another print on inflation tomorrow in the form of the personal consumption expenditures. But you do wonder. The Fed chairman has said, well, the debate is going to be between 50 and 75.
Pat Harker from the Philadelphia Fed said on our programming that, well, if demand continues to show signs of softening, which we have seen in, let's say for example, the recent retail sales report, he would support 50. But then you have Loretta Mester from the Cleveland Fed saying just this morning she supports 75. You have to remember, I mean, Jay Powell is just 1 of 18 members of this committee so far. So we'll have to see what the kind of consensus looks like about four weeks from now.
- Well, and to your point, interesting to see the market reaction because yesterday we saw a huge dip on the back of the consumer confidence numbers that came out, pointing to a decline and seeing that the expectation here is that there will be some kind of recession over the next 12 months or so.