What Is Fed Chair Powell's View on the Current Economy?

What Is Fed Chair Powell’s View on the Current Economy?

When it comes to the economy, the question that’s on both Wall Street and Main Steet’s mind is the same: When will inflation end? Fed Chair Jerome Powell’s speech yesterday gave us some clues, suggests Adviser’s Senior Research Analyst Liz Laprade. Powell’s commentary touched on the surprising jobs number, interest rates and the trajectory of inflation.
Powell is hopeful that we are already in a period of disinflation and that the coming months will bring further slowdowns in price increases.  However, the recent jobs number means that they might need to continue to raise interest rates.  These conflicting messages caused conflicting action among stock market investors yesterday.
As hard as it might be to ignore the noise in the headlines these days, the best thing for your portfolio is to stay invested in the stock market and stay focused on your long-term goals.  Fed Chair Powell expressed a similar sentiment in his speech yesterday, saying that investors and traders are overreacting to short-term events, while the Fed is simply thinking long-term.  
If you have questions for Liz, please send them to info@adviserinvestments.com.
The bond market, the debt ceiling and more...Episode Transcript

What Is Fed Chair Powell’s View on the Current Economy Episode Transcript

Liz Laprade:

Investors were anxious to hear what Fed Chairman Jerome Powell had to say yesterday about his view on the economy because it had huge implications for both the stock and bond markets. So, what did he have to say and how can we create market expectations out of it?

Hi, I’m Liz Laprade, Senior Research Analyst with Today’s Adviser Takeaway. Powell gave some important commentary surrounding the recent jobs number and inflation trajectory. To be honest, I personally felt a bit conflicted and reading headlines it seems others were as well.

On the one hand, he seemed hopeful that we’ve entered a period of disinflation. But on the other hand, the recent jobs number that kind of blew out expectations means that they might be continuing to raise rates for longer. And he thought that maybe this outcome was not quite priced into the markets.

This is conflicting, right? Because OK, we’ve maybe got inflation under control and they could slow, you know, their rate hikes, but it’s implied that if jobs and wage growth continue to be healthy, that they might need to continue raising rates to try and kind of stave off any possible return of inflation from those becoming overheated.

Markets felt conflicted too. Initially, up down briefly and then ending the day in the green.

So how do we build expectations out of this?

Well, for one, I would say the swings we saw yesterday in the stock market were probably mostly driven by traders who had placed bets on where they thought, you know, Feds commentary was going to move the markets and then they had to go and cover their positions. In the bond market though, rates didn’t really have any outsize reactions. So this tells me that short term traders were driving the stock markets. But the lackluster move in rates could mean some investors do think that the hikes are already priced in. Otherwise, I might have expected rates to jump a bit higher in the short term.

So, for a longer-term outlook, I think that we need to accept that any continued signs of an overheated economy will come with higher rates for longer.

As far as your portfolio goes well. We know the market goes up over time and as hard as it may be to ignore the noise right now and stay invested, it is the best thing for your long-term goals. Even Powell yesterday said he thinks that investors and traders are overreacting to the short-term events while the Fed is simply thinking long term. And that is it for me today, I will talk to you all next week.

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