JPow Speaks…Again
Can this guy just shut up? Markets are more than volatile enough with JPow yappin’ it only 8 times a year, and as far as I’m concerned, we’re about to OD on vol anyway.
But if he insists on speaking, I guess we’ll listen. Fed Chair / God King Jerome H. Powell took the stage at the “Economic Club” of Washington to give markets as much of a scare as the first episode of The Last of Us. If your neck hurts from all the whiplash, just know we feel your pain too, apes.
Just looking at a chart of the S&P yesterday gives the whole story. Right off the bat, it was a party. See, the market was likely anticipating JPow to be super-mega-hawkish after last Friday’s jobs report, but right off the bat, he set the tone for a dovish-leaning conversation.
To say it was a friendly environment for Powell is an understatement. Not only is he like the all-star quarterback and the head cheerleader combined with that audience of economic nerds, but the interviewer himself is a bit of an old friend.
Duke University’s Board of Trustees Chair and billionaire David Rubenstein asked the questions, and this guy also just happened to found the Carlyle Group, JPow’s employer from 1997-2005, where he worked as a Partner. Maybe that had him feeling calm, or maybe it’s not that deep (*shrugs*).
But Rubenstein still did hit him with the hardest question of the day right off the bat. Essentially he asked Powell if the FOMC would’ve raised rates more last week if they’d had the January jobs data in advance. In response, Powell put on a masterclass of saying nothing by saying something, with the most important lines being:
- “...we didn’t expect it to be this strong…”
- “...shows you why this will be a process that takes a significant period of time.”
After this, the questions got a lot easier and certainly easier to rehearse answers to. Powell essentially tried to keep up the same message from Wednesday while markets expected him to come at it with a more hawkish tilt, hence the spike in $SPY following the speech.
Other important bars JPow spit were essentially just like, “yeah, you can copy my homework, but just change it a little, so it’s not the exact same.” Key messages included:
- It will take a “significant period of time” before inflation is squashed due to the continued labor market strength shown Friday
- There remains a “long way to go” for the “disinflationary process” to complete
- “React to the data,” “a bumpy road,” and “more work to do.” You get it...
A new message of the same old stuff probably summarizes it best. Still, we did get a little something when Powell made clear where his disinflationary focus is. With services making up over 50% of the US economy, JPow mentioned that what he wants to see most is a slowdown in service costs, particularly those related to housing.
But even that’s a stretch, as this was pretty much the consensus assumption anyway. A few things we did learn, however, is that Powell does enjoy a nice bike ride, a cool mystery novel, and of course, playing the guitar. Good stuff!
Expect more of the same leading up to the March meeting. Markets are still pricing in rate cuts later this year and beyond, as indicated by the yield curve, so we’ll see who blinks first.
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