Jerome Powell 19 May 2023 Talk On Interest Rate & US Mkt Direction?
The speech by Mr Powell, the Federal Reserve chair, on Friday, 19 May 2023, was closely watched by investors and analysts who were looking for clues on the future direction of US monetary policy.
Below are 5 key points that I derived after watching the discussion sessions on Youtube:
On whether US interest rates will need to rise further, Mr Powell said that it is still unclear and the Fed team will have to monitor official data - month by month to determine.
Recent bank-run debacle and the stresses it had brought to the banking sector could mean that “our policy rate may not need to rise as much as it would have otherwise to achieve our goals”, so said the Fed chairman.
Although inflation is far above the objective of 2% and still poses significant hardships, Fed is strongly committed to stay its course and return inflation to its target.
The Fed’s monetary policy and financial oversight tools are viewed as complementary, playing a vital role in maintaining price stability and a robust financial system. These are mutually exclusive and have a part to play & influence the US economy as a whole.
Powell’s speech comes at a time when markets are divided on where the Fed goes from here, with market pricing indicating about a 35% probability of another interest rate hike when it meets in June.
Fed members - Pro interest hike:
Lorie Logan (Dallas)
Loretta Mester (Cleveland)
Fed members - Against interest hike:
Austan Goolsbee (Chicago)
Raphael Bostic (Atlanta)
Philip Jefferson (newly appointed Fed vice chair).
Jerome Powell (Fed chairman) - of course!
Fed Chairman Speech and US Market
The speech had a mixed impact on the US stock market and the US banking stocks in particular.
On one hand, some investors were relieved that Mr Powell did not signal an imminent rate hike, which could hurt corporate profits and consumer spending.
On the other hand, some investors were disappointed that Mr Powell did not offer more clarity or reassurance about the inflation outlook and the Fed's policy stance.
The S&P 500 index ended the day slightly lower, while the financial sector was among the worst performers.
The speech also had implications for the US stock market and the U.S. banking stocks in the coming months.
The Fed's next policy meeting is scheduled for June 13-14, and it will be influenced by several factors,
Latest incoming data on inflation & employment,
Global economic conditions and
Resolution of the debt ceiling crisis
If the Fed decides to raise rates in June or signals that it will do so soon, it could trigger a sell-off in the stock market and weigh on the banking stocks, which are sensitive to changes in interest rates and credit conditions.
However, if the Fed decides to pause or indicates that it will be patient and data-dependent, it could boost the stock market and support the banking stocks, which could benefit from a stronger economy and higher demand for loans.
Do you think Mr Powell’s speech has thrown a lot of hints ?
Do you think the Fed will raise interest rate further in Jun 2023 ?
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