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Here are 3 things that could impact the market during Powell’s speech at Brookings


With the Federal Reserve about to enter a pre-meeting media shutdown, investors will be attentively listening when Chairman Jerome Powell speaks at the Brookings Institution at 1:30 p.m. in New York on Wednesday.

Although two other senior Fed officials will give public speeches on Wednesday and Thursday, Powell’s speech at Brookings has been seen by market analysts as the most important event for the Fed. market this week.

Investors also received a slew of US economic data, including Wednesday’s revised data for the third quarter. gross domestic product. The data showed that the US economy actually accelerated by 2.9% in the third quarter, more than previously believed. Investors also receive an update on labor market statusand pending home sale data. On Thursday, another report on October inflation will be released. And Friday will have monthly jobs data for November.

Focusing too much on Powell’s comments, analysts at Sevens Report shared with clients and reporters a list of key themes to watch out for in Powell’s comments.

What is the December plan?

At this point, markets have internalized expectations of a 50 basis point increase in the Fed funds rate in December, the authors of the Sevens Report say. In fact, every Fed official have spoken since the November meeting suggesting it is time to slow the pace of rate hikes while the central bank waits to see the impact of this aggressive monetary policy tightening on the economy. Minutes of the meeting in November also helped bolster expectations of a smaller rally.

As a result, the authors of the Sevens Report expect that if Powell offers any guidance on what investors should expect from the Fed in December, it will likely involve “reminding” echoes previous comments that rate hikes will slow down.”

If this happens, the stock may recover. But if they do, it could be a “fake” as investors rush to fade the move, the Sevens Report authors warned.

There is also the possibility that Powell will surprise the market by hinting that a 75 basis point increase could still be considered next month. If this happens, assume it will be a “negative thing for the market,” the Sevens Reporting team said.

Will Powell signal inflation?

The next data from the PCE price index will be released on Thursday. Shares rose modestly after October consumer price indexwith the S&P 500 up nearly 2.5% since the market opened on November 10, the day the data was released.

There is still much debate around whether the Fed has made meaningful progress on inflation. For example, Fed President St. Louis Jim Bullard told MarketWatch earlier this week that he believes markets are underestimating the amount of work the Fed still has to do to tame the worst inflation in four decades.

The authors of the Sevens Report expect Powell to concede “some progress” on inflation, with the warning that it is “still completely too high and the Fed still has a long way to go to meet inflation targets” its own distribution”.

If comments like these spark a rally in equities, the rally is likely to be short-lived for the same reasons as the rally when it comes to a 50 basis point rally. in December can quickly fade.

The authors of the Sevens Report said: “As we and others have mentioned, inflation is not low enough to keep Powell very active on the topic. On the other hand, there’s a chance stocks will slide if Powell says it’s unclear whether peak inflation has actually passed.

terminal rate

Since the Fed began the process of announcing a possible 50 basis point rate hike in December, the focus of the market has shifted to where the Fed funds rate is likely to peak next year. This top is what economists and market analysts call the “final interest rate,” as it represents the highest level that interest rates will reach during this cycle.

According to the Sevens Reports team, the last two times Powell talked about the rate, he said it may need to move higher than the market anticipates.

“Powell knows the market expectation for the closing rate is 5.00%. If he again said that expectations were too low, it would be a clear signal to the market that the end-of-term interest rate expectation must be higher than 5.00% and that would be a clear negative for stocks and bonds as Powell once again quelled any growing hopes for the Fed’s pivot policy,” the Sevens Reporting team said.

The S&P 500 index traded slightly lower Wednesday morning as investors awaited Powell’s comments at the Brookings Institution. The Fed chair is expected to resume at 1:30 p.m. Eastern.

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