NEW YORK (Reuters): Wall Street’s main indexes opened lower as concerns about aggressive monetary tightening were reinforced by Federal Reserve chair Jerome Powell who said on Thursday the central bank was “strongly committed” to controlling inflation.
Powell’s comments in a telecast discussion hosted by the Cato Institute briefly lifted U.S. Treasury yields and supported the dollar.
“Once again, Powell reiterates the Fed’s job, that they’re mandated by Congress to maintain price stability and employment. It seems his primary concern is price stability, and he realizes that that could have a negative impact on employment, but given the incredibly low levels of unemployment, he’s essentially saying there’s room for unemployment to go up without causing a major problem. We’ve got weekly jobless claims today, which are the more leading of the employment data, and were not only lower, but also last week’s numbers were revised down as well – we’re essentially at pre-pandemic levels for initial jobless claims. So Powell sees there’s plenty of room to cause unemployment to go up a little, if that’s what’s necessary to get prices down.”
“Markets were up modestly and as he started talking, they moved a bit lower. It’s tough to find a good explanation for yesterday’s move higher other than the fact that seven out of the last nine days have been lower. So there’s probably a technical oversold nature to it, and it wouldn’t have surprised me to see the markets pull back a little today, even if he hadn’t been speaking, but clearly he’s maintained his existing hawkish tone, and markets still seem to be surprised, so they’re selling off of it.”
“Two things. Number one, market participants have seemingly changed their opinion about what the Fed’s going to do. It’s important to remember the lesson we all learned years ago, and that’s don’t fight the Fed. And the Fed is telling us that they’re laser-focused on inflation.”
“The second thing, from a broad economic perspective, the U.S. is in a luxurious position of a continued strong labor market, meaning the Fed can raise rates without creating a sharp economic downturn.”
“Overall, the (inflation) trend will continue to be down. However, we should prepare ourselves for small spikes here and there. It will not be linear. It almost never is. But the most important thing is there’s a very good chance the Fed can bring down inflation without causing a significant recession.”
“The economy and the labor market can absorb a 75 basis point hike.”