Stock market crash concerns are elevated after Federal Reserve Chairman Jerome Powell dumped some ice water on Wall Street gossip that the Fed will move to cut rates sooner than expected. Indeed, Powell assured onlookers that talks of a cut are “premature,” even despite the strength of last month’s inflation reports.
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said earlier today in a speech at Spelman College.
Powell’s comments come as a method of crowd control after days of frenzied speculation. Wall Street has been abuzz since the release of the October Personal Consumptions Expenditures (PCE) inflation report earlier this week. The PCE confirmed what the Consumer Price Index (CPI) had already said quite clearly in mid-November: Inflation is letting up.
Prices increased less than 0.1% in October from September, reflecting annual inflation of just 3%, per the Fed-preferred PCE. While this isn’t quite at the Fed’s long-stated 2% goal, it’s clear to many analysts that inflation has turned the corner.
With fears of a recession still top of mind heading into the new year, some economists believe the Fed should look to cut rates before its potential “soft landing” scenario becomes an eventual “hard landing.”
In fact, interest rate traders are currently pricing in a nearly 50% chance of a rate-cut by March of next year, according to the CME FedWatch Tool. Traders are also confident that the Fed will hold rates steady at its upcoming Dec. 13 policy meeting.
What Do Powell’s Hawkish Comments Mean for a Potential Stock Market Crash?
Powell’s comments today have served to rebalance the narrative.
“While the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2% objective,” Powell said.
Powell isn’t alone in his pragmatism. Indeed, on Tuesday, Fed Governor Michelle Bowman stated she believes the Fed will likely need to raise rates at least one more time in order to keep price levels down.
According to Bowman, structural changes in the post-pandemic economy, general economic uncertainty, interest rate insensitivity, and the potential of new labor shortages all point to the necessity of more rate hikes this cycle.
“In my view, given potential structural changes in the economy, such as higher demand for investment relative to saving, it is quite possible that the level of the federal funds rate consistent with low and stable inflation will be higher than before the pandemic,” said Bowman, per Reuters.
The hawkish narrative comes amid concerns that overly restrictive monetary policy may give way to economic deterioration, potentially in the form of a recession in 2024. To that end, it’s unclear what the future will hold. Clearly, however, many Fed officials are more concerned with lowering prices than a potential recession.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
