Jerome Powell Weighs In, Bond Bulls Return: What You Need to Know About The Fed's Latest Move

The Federal Reserve announced Wednesday that it will maintain its benchmark interest rates in the range of 5.25% to 5.5%, a decision in line with market expectations.

Fed Chair Jerome Powell acknowledged the current restrictive monetary policy is exerting downward pressure on inflation, but he cautioned there is still a long way to go before inflation reaches the Fed’s target of 2%.

He emphasized that the Federal Open Market Committee is not yet confident that the policy stance is sufficiently restrictive and will continue to assess the situation on a meeting-by-meeting basis.

Powell also highlighted that strong economic indicators, including above-average growth, a resurgence in inflation and a tightening labor market, could necessitate further tightening of monetary policy in the future.

Persistent Trends In US Dollar, Treasury Yields Could Impact Fed’s Job

One significant factor affecting the path of monetary policy, according to Powell, is persistent changes in financial conditions. Factors such as the strength of the U.S. dollar and the level of Treasury yields can influence the Fed’s decision-making process, he said.

Powell also commented on the potential impact of mortgage rates, stating that rates at 8% could have a significant impact on the housing market, further emphasizing the importance of monitoring financial conditions.

He clarified that the Fed is looking for persistent changes in financial conditions rather than short-term fluctuations. Inflation is still running above target, the labor market remains tight and GDP growth has been robust, Powell said.

Powell Dismisses Interest Rate Cut Speculation

He decisively dismissed speculations about potential rate cuts and reaffirmed the committee is not considering such a move. Powell left the door open for further rate hikes.

Regarding the possibility of a rate hike in December and the future of the Fed’s tightening campaign, Powell stated the committee has not made any decisions yet. He mentioned that two more inflation readings and two more labor market readings are needed to assess the situation accurately.

Addressing economic risks stemming from external factors such as the UAW strike and the Israel-Hamas war, Powell acknowledged that global geopolitical tensions are elevated. It’s unclear that conflict in the Middle East is on track to have an economic impact on the United States, he said.

“We have come very far with this rate hike cycle and are close to end of the cycle,” Powell said.

Policy is “clearly restrictive” and risks between doing too much compared of doing too little are getting more balanced, the Fed chair said.

Market Reactions To Powell’s Press Conference

Powell’s comments extended the daily decline in U.S. Treasury yields, causing the 10-year yields to drop by a substantial 16 basis points as of 3:15 p.m. in New York.

The US Treasury 10 Year Note ETF UTEN rose 0.7%, while the longer-dated iShares 20+ Year Treasury Bond ETF TLT rallied 1.5%. The dollar weakened, erasing daily gains.

Stocks surged during Powell’s press conference, with the SPDR S&P 500 ETF Trust SPY gaining 1%, while tech stocks, mirrored by the Invesco QQQ Trust QQQ, made a remarkable rally of 1.5%.

In a positive sign, all U.S. equity sectors showed gains, with the Technology Select Sector SPDR Fund XLK leading the way, posting an impressive 1.7% increase.