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Thursday September 22, 2022
Stocks are finally listening to Jay Powell and the Federal Reserve.
In a highly anticipated move Wednesday, the Federal Reserve raised its benchmark interest rate by 0.75 percentage point after increasing a similar amount during the two previous meetings. Powell & Co. also provided an aggressive surprise, pushing expectations for further gains this year and the following year to a final ending rate of 4.6%.
The Dow, Nasdaq Composite and the S&P 500 all ended the day about 1.75% lower. That is in stark contrast to the rally after the previous meeting in July, which was also quite aggressive.
What has changed since July? In August, at the Fed’s annual meeting in Jackson Hole, Wyoming, Powell said the central bank would raise interest rates to the “the job is done“reduce inflation.
Powell’s unusually short and direct Jackson Hole message seems to be the deciding factor for the markets. On Wednesday, he doubled.
“My most important message has not changed since Jackson Hole,” Powell said at a news conference on Wednesday. “The FOMC is committed to curb inflation and we will continue until the job is done.” Shares be damned.
Looking ahead to the two remaining meetings in 2022, the markets are adjusting to the probability of a fourth 0.75% in October and 0.50% in December.
Former Fed Governor Larry Meyer goes one step further, forecasting a 0.50% gain in February and 0.25% in March to complete the cycle. This brings the Fed’s final interest rate to 5.00% to 5.25% – a full 2.00 percentage points above the rate set Wednesday.
Powell and his colleagues may have slept well last night, knowing Wall Street got word that interest rates will continue to rise — even if investors didn’t necessarily like what they’re hearing.
What to watch today
8:30 a.m. ET: Current account balanceQ2 (-$260.8 billion expected, $291.4 billion in the prior quarter)
8:30 a.m. ET: First applications for unemploymentweek ended September 17 (218,000 expected, 213,000 during previous week)
8:30 a.m. ET: Continuing Claimsweek ending September 10 (1,400 expected, 1,403 during previous week)
10:00 a.m. ET: Leading indexAugust (-0.1% expected, -0.14% over previous month)
11:00 a.m. ET: Kansas City Fed. Production activitySeptember (5 expected, 3 last month)