Stocks sank as Jerome Powell gave a short and clear message that rates will stay high for some time.
Jackson Hole has come and gone, and the only surprise may be that the stock market was surprised.
But surprised it was. The stock market began this past week on its back foot, an appropriate response as investors appeared to realize that they might have overestimated the chances of a dovish Federal Reserve. Yet the market regained ground heading into the meeting on Friday, as investors bought the dip. Then, Chairman Jerome Powell started talking. He told attendees at the symposium that the Fed needed to bring inflation back down to its 2% goal, that doing so would take time, and that another large interest-rate increase was likely in September. The speech, which could have lasted 30 minutes, took only 10.
“Fed Chair Jerome Powell’s speech today at the Fed’s Jackson Hole conference was short and hawkish,” writes Ed Yardeni, chief investment strategist at Yardeni Research. “He quashed any lingering expectations that the Fed would pause its tightening and might lower interest rates next year.”
Did he ever, and the markets didn’t miss the message. The Dow Jones Industrial Average declined 3% on Friday and finished the week down 4.3%, while the
index fell 3.4% to close the week off 4.%. It was their worst weeks since June.
It’s not that investors are worried about what happens at the next meeting. According to the CME FedWatch tool, the futures market was pricing in a 61% chance of a three-quarter point rate hike after Powell spoke on Friday, down from 64% the day before. The real fear…