Wall Street Falls, Bond Yields Jump After Jerome Powell’s Jackson Hole Speech

“Powell wants financial conditions to tighten even more and he wanted the market to know that the Fed is not yet ready to declare victory over inflation,” said Joe Gilbert, portfolio manager at Integrity Asset Management. “He also gave up any prospect of interest rate cuts soon. The market is repricing this outlook.”

Futures contracts referencing the Fed’s September policy meeting trade on roughly equal odds of a half-point or three-quarters-point rise.

The amount of additional adjustment discounted for this year rose slightly, with traders seeing less chance of rate cuts in 2023.

For Cornerstone Wealth’s Cliff Hodge, the Fed will remain aggressive at the expense of growth and traders should expect more volatility and tougher conditions for equities.

“Powell can’t just come right out and say that the Fed is fine taking us straight into recession to squash inflation, but that’s what this message unequivocally implies,” Hodge said.

“What does this mean for the markets? Drastically reduces the chance of a soft landing and the bullish case for new highs this year.”

The Fed chief reiterated that another “unusually large” hike might be appropriate next month, though he stopped short of committing to one, adding that the decision would depend on incoming data.

Several officials have stressed that the central bank is by no means done, with Kansas City Fed chief Esther George signaling that the fate of the fed funds rate may be higher than the current market price.

Former US Treasury Secretary Lawrence Summers rarely praised the Fed, saying Powell’s latest promise to contain inflation was a “statement of determination”.

He said the policymaker “did what he had to do” and that it was clear the Fed’s “overwhelming priority” is to pull back inflation from the fastest pace in four decades.

Investors are rushing out of stocks and bonds fearing the economic risks of pressure from the Fed with rate hikes, according to strategists at Bank of America Corp.

Global equity funds had outflows of $5.1 billion in the week to Aug. 24, with US stocks seeing their first bailouts in three weeks, according to a bank note, citing data from EPFR Global.

Rate-sensitive tech funds posted their biggest exodus since November 2021, while high-yield bonds led global bond funds’ $800 million bailouts. About $600 million was left in gold, the data shows.

Data on Friday showed consumer spending rose less than expected as a key inflation metric turned negative.

US consumer confidence rose more than expected in August as inflation expectations for the year ahead eased, suggesting that Americans are becoming more optimistic as gasoline prices continue to fall. .


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