Fed’s Jerome Powell Sinks Stocks, Adding Pressure on Inflation

Futures indicate the S&P/ASX 200 will drop 104 points from Friday’s close of 7104.1 points. the&The P 500 fell 3.4 percent, the Dow Jones Industrial Average 3 percent and the Nasdaq nearly 4 percent.

The Fed’s job is to restore inflation to 2 percent; it was 8.5 percent in July, declining from a 41-year high of 9.1 percent in June.

energy exposure

BHP Group fell 1.8 percent in New York to $58.88, where one NYSE-traded security is equal to two BHP common shares. Atlassian fell 3.5 percent to $257.05 and Amcor fell 3.9 percent to $12.42.

Fortescue Metals Group and Mineral Resources are scheduled to report 2022 financial earnings on Monday.

The ASX’s anticipated losses would be higher were it not for its huge energy exposure. Brent crude futures for October rose 1.7 percent to $100.99 a barrel. European shares fell 1.9 percent.

The annual Jackson Hole symposium for the world’s central bankers, hosted by the Kansas City Fed, intersected with a market that had adopted the view that the Fed was on the cusp of a dovish pivot, fueling a rally in the actions.

In fact, the opposite happened. The 10-year US bond rate rose 2 basis points to 3.04 percent, but as of Friday, bond prices had risen, sinking the yield from a peak of around 3.5 percent for bonds. Treasury in June.

“[Jerome Powell] it had to be too aggressive,” said Angus Coote, co-founder of Jamieson Coote Bonds. “Financial conditions are going in exactly the opposite direction that they want with this recent market rally.

“They need to get money out of the system and the rally in stocks since June has done nothing but ease financial conditions, which is exactly what the Fed didn’t want.”

europe fight

Coote said the turnaround the market was looking for “clearly isn’t coming anytime soon.”

The next Fed meeting is on September 20-21 and will provide updated economic projections, including the future path of interest rates. In his latest set of forecasts, the median committee member posted a federal funds rate of 3.4 percent at the end of 2022, 3.8 percent at the end of 2023 and 3.4 percent at the end of 2024.

The fed funds rate is set at 2.25 percent to 2.5 percent, with three meetings remaining in 2022.

Former Treasury Secretary Larry Summers. Bloomberg

Larry Summers, a former US Treasury secretary under Bill Clinton, said Powell “did what he had to do,” in comments reported by Bloomberg. The European Central Bank (ECB) has a more difficult task than the Fed, he argued, because of energy policy and politics.

“I suspect they are going to have to raise rates more than what is currently priced in, but that will come at a time when there will be very substantial recessionary forces,” he said.

With a week remaining in the race for UK prime minister, leading candidate Liz Truss is considering cutting the value added tax or VAT rate by 5 percentage points to 15 per cent for one year, estimated at £38,000. million ($64.9 billion), to ease the cost-of-living crisis, The Telegraph informed.

Among the speakers at Jackson Hole, ECB Executive Member Isabel Schnabel said on Saturday: “Central banks must act forcefully. They need to brace themselves resolutely against the risk of people beginning to doubt the long-term stability of our fiat currencies.”

The ECB has only raised interest rates once this cycle, in July.

The Jackson Hole events also draw a line under the falsely assumed “goldilocks” narrative of the market.

“It wasn’t a narrative that was ever embraced by the Fed,” even after inflation arguably peaked in July’s CPI data. “For the Fed, the key question is not whether inflation has peaked, but how quickly it gets back below 3 percent,” said Stephen Miller, investment strategist at GSFM.

The three main takeaways from Powell’s speech are that controlling inflation is the priority, US rates need to get into tightening territory, and planned 2023 rate cuts are premature, according to Janus Global Bond Portfolio Manager. Henderson, Jason England.

Even if the size of the rate hikes is reduced to 0.5 percentage point from 0.75 percentage point in next month’s Fed decision, “it should not be taken as a dovish swing as there is more work to be done on the inflation, and they will continue to do so until the job is done,” said Mr. England.

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