Title: Fed Chairman Powell’s Statement Could Affect U.S. Stocks Despite No Interest Rate Hikes
Date: September 19, 2023
In the midst of uncertainty surrounding U.S. monetary policy and the outlook for financial markets, Chairman Jerome Powell’s upcoming statement could still impact U.S. stocks, even if the Federal Reserve announces no interest rate hikes on Wednesday.
Investors have been seeking clarity on U.S. monetary policy for the past six weeks, and while policy rates are expected to remain unchanged, Powell’s comments and Q&A session could roil the markets. Market analysts believe that Powell’s statement is likely to align with his previous speeches in August and July, but it is the Q&A session and the release of policymakers’ interest rate forecasts, known as the “dot plot,” that could provide market-moving news.
Steve Sosnick, Chief Strategist at Interactive Brokers, warns that despite a relatively low VIX Index, which signifies market optimism, complacent markets can be vulnerable to negative shocks. The market has experienced a back-and-forth struggle recently, as inflation accelerates while the U.S. labor market and overall economy slow.
Investors are looking for clues that might dissuade them from expecting interest rate cuts in mid-2024. Should such clues arise, it could weigh on U.S. stocks and push U.S. Treasury yields and the dollar higher. According to Liz Ann Sanders, Chief Market Strategist at Schwab, the question-and-answer session during the post-meeting press conference usually has a more substantial impact on markets than Powell’s initial statement.
Evidence suggests that the U.S. economy may be responding to the Federal Reserve’s aggressive rate hikes since the 1980s. The number of corporate and personal bankruptcies has increased, and signs indicate a cooling post-pandemic labor market. The U.S. Department of Labor’s monthly employment report for August revealed fewer than 200,000 new jobs created, and the unemployment rate rose to 3.8%. Additionally, the consumer price index recorded consecutive monthly accelerations, causing concerns about stagflation.
Ongoing concerns further compound the situation. A recent report showed a significant increase in consumer prices, while the resumption of student loan debt, autoworker strikes, and the possibility of a government shutdown have raised apprehensions about the economy’s performance.
Federal Reserve Chairman Powell may have to address these issues during his upcoming statement. He might also be pressed to clarify investors’ expectations regarding the timing of the first rate cut of this cycle. Premature expectations of a policy shift last summer caused a brief but impactful bear market rally to fail.
Traders anticipate the Fed to keep interest rates steady, with CME’s Fed watch tool indicating a market-based pause in interest rates. However, expectations for additional rate hikes later this year remain divided.
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