- US stocks ended the day mostly lower.
- The Fed suggested it would start hiking rates in March.
- Chair Jerome Powell said balance sheet reductions could happen faster and sooner than investors had expected.
Wall Street had rallied Wednesday but then turned lower after the Federal Reserve signaled that interest rate increases could come as soon as the next meeting in March.
Even though Wednesday’s monetary policy update was broadly in line with expectations, the Fed’s confidence about raising rates and normalizing its massive balance sheet were a little too much for investors to handle.
All three indexes had spent most of the day trading sharply higher before the post-Powell drop. Wednesday was no exception in the recent string of volatile days in the market.
Wall Street is really unhappy with Federal Reserve Chairman Jerome Powell today.
After saying the Fed could unwind its balance sheet sooner and faster than expected, Powell didn't dismiss the possibility that it could hike rates faster than the market expects, either.
Asked about the potential for a half-point rate hike this year, Powell declined to commit one way or another. But he noted that inflation is significantly worse now than it was in 2015, when it last began hiking rates. He also said the job market is in a stronger position.
Still, he said the Fed will begin to discuss rate hikes in March.
Stocks are hating this.
So higher interest rates are coming "soon".
For government bond yields, which track rate expectations, that means the sky is the limit.
The 10-year Treasury bond jumped back above 1.8% during the Fed's press conference -- a level it hit last week for the first time since the pandemic started.
Toward the end of Powell's time at the podium, the 10-year bond yielded 1.83%.
If you're looking for information about the Fed's stock trading scandal, Fed Chair Jerome Powell has no answers for you.
"We don't have that information at the Board, and, you know, I asked the Inspector General to do an investigation, and that is out of my hands," Powell said. "I'm playing no role in it, I seek to play no role in it, and I don't -- I really -- I can't help you here today on this issue. And I'm sorry, I can't."
Bloomberg's Craig Torres asked Powell at the press conference today why the Fed declined to provide the dates of various Fed officials' stock trades, which could have been made with insider information.
The market thinks the first rate hike will happen at the Fed's next meeting in March.
But for anyone unsure, Federal Reserve Chair Jerome Powell just made things real clear:
"I would say the committee is of a mind to raise the federal funds rate at the March meeting assuming that conditions are appropriate for doing so," he told reporters.
But he noted that the Fed hasn't yet made a decision, and March is a long time away. So the economic situation could change between now and then.
"Sooner ... and perhaps faster."
That's how Federal Reserve Chair Jerome Powell described the potential path for rate hikes this year — particularly compared to 2015, when the Fed last hiked rates on an every-other-meeting schedule.
That's not the message investors were hoping for.
Investors have unsuccessfully been trying to read the tea leaves on the Fed for weeks. Still, Powell said the Fed and investors were on the same page ... for some reason.
"We feel like the communications we have with market participants and with the general public are working," Powell said.
The Fed said it will raise rates "soon." You want more details than that? Fed Chair Jerome Powell says you're just going to have to read between the lines.
"It is not possible to predict with much confidence exactly what path for our policy rate is going to prove appropriate," Powell said. "And so at this time we haven't made any decisions about the path of policy, and I stress again that we'll be humble and nimble."
Powell said the Fed would be "guided by the data," including jobs added to the economy, job openings, quits and other measures that could help give the Fed assurances that it's time to raise rates sooner or stave off rate hikes.
And yet... Powell kinda sorta hinted that the balance sheet reductions could come sooner and faster than the "every other meeting" pace it has stuck to in recent history.
"We know that the economy is in a very different place than it was when we began raising rates in 2015," he said. "Specifically, the economy is now much stronger, the labor market is far stronger, inflation is running well above our 2% target, much higher than it was at that time. And these differences are likely to have important implications for the appropriate pace of policy adjustments."
The economy doesn't need as much help has it has gotten from the Federal Reserve over the past two years, Fed Chairman Jerome Powell said during today's press conference.
That's why the central bank is moving to end its stimulus program and raise interest rates, which is also aimed at alleviating inflation pressure.
"Like most forecasters we continue to expect inflation to decline over the course of the year," Powell said.
Federal Reserve Chairman Jerome Powell has taken the virtual stage in Washington.
In his opening remarks, Powell talked about the Omicron variant that has hamstrung the economy over the last several weeks. If the variant passes quickly, he said, the economic implications should be small.