Unusual Whales

Jerome Powell has said that there is nothing suggesting a downturn is more likely now than previously

Unusual Whales -

The U.S. economy appears to be on track for continued easing in inflation, which should enable the Federal Reserve to reduce its benchmark interest rate and eventually reach a level that no longer restrains economic activity, Fed Chair Jerome Powell said on Monday. Speaking at the National Association for Business Economics conference in Nashville, Tennessee, Powell emphasized that the Fed has no predetermined path for rate cuts, stating, "The risks are two-sided, and we will continue to make our decisions meeting by meeting."

Powell indicated that he expects two more rate cuts this year, totaling 50 basis points, assuming the economy performs as anticipated. However, he noted that the Fed could adjust its pace of rate reductions depending on economic conditions, either cutting faster or more slowly as needed.

At the Fed's Sept. 17-18 meeting, policymakers lowered the interest rate by half a percentage point, bringing it down from a 20-year high of 5.25%-5.50%—which had been maintained for 14 months—to a range of 4.75%-5.00%.

Market Reaction:

  • Stocks: The S&P 500 (.SPX) saw a slight extended loss of -0.23%.
  • Bonds: The yield on the U.S. 10-year Treasury note rose to 3.80%, while the 2-year note yield increased to 3.651%.
  • Forex: The dollar index gained 0.39%.

Expert Commentary:

Greg Faranello, Head of U.S. Rates Strategy, AmeriVet Securities, New York
"Powell is trying to temper expectations a bit, which is probably the right approach. The Fed has signaled a preference for a more gradual path lower. While parts of the economy have softened, there are still sectors performing well. The Treasury market is easing slightly from recent levels as we look for a new catalyst. We had priced in significant rate cuts, and now we're stepping back a bit, with expectations for 75 basis points of cuts in 2024. Consolidation makes sense."

Wasif Latif, President and Chief Investment Officer, Sarmaya Partners, Princeton, New Jersey
"Powell’s 'over time' comments have dampened some of the market's optimism for rapid rate cuts. We’re seeing a bit of repricing based on those remarks. There’s always some disconnect between bond and equity markets, where we initially see one move followed by a bounce back."

Robert Phipps, Director, Per Stirling Capital Management, Austin, Texas
"Powell's comments suggest that the committee doesn't feel any urgency to cut rates quickly, which came across as less dovish than the market expected. There had been some anticipation of a 50 basis point cut by the end of the year, but Powell’s remarks likely took that off the table."