Fed's Wall Street Clash Sets Stage for Powell’s Hawkish Message
Jerome Powell and Wall Street are headed for another face-off this week as the Federal Reserve seeks to slow its inflation-fighting campaign without signaling a readiness to stop.
Despite 2022’s slew of interest-rate hikes from Chair Powell and colleagues, financial conditions are the loosest since last February as investors bet fading inflation will allow the central bank to soon cease raising borrowing costs and then cut them later this year.
That’s likely wishful thinking as far as Powell is concerned and he has a clear incentive to push back against the trade given rising stocks and bonds could fan the very price pressures he wants to restrain.
Such a backdrop means Powell is expected to balance this week’s likely 25 basis-point increase in rates with a stern message that the step down in size from the past six hikes doesn’t diminish his commitment to reducing inflation to 2%. It stood at 5% in December. He may even be willing to roil the upbeat markets if that’s what it takes to make his point.
“He can just send a hawkish message,” said Ethan Harris, head of global economics research at Bank of America Corp. “I don’t think he’s going to want the markets rallying out of this meeting. He doesn’t want to throw more gasoline on this kind of optimistic spin” fueling the markets.