Do not play on the stock market on days when the American Federal Reserve (Fed) intervenes: so goes the adage on Wall Street, and it is particularly true under the presidency of Jerome Powell. The central banker has a habit of stumbling and contradicting the press releases of his own institution by causing the financial markets to yo-yo.
This Wednesday 1er May did not escape the rule, even if the president of the Fed did not blunder and tried, in his press conference, to protect the stock market from the worst, pushing back the disaster scenario of a new increase in rates: “I think it is unlikely that the next move in key rates will be an increase”he said, sending Wall Street indices soaring during the session – by 1.2% for the S&P 500 and 1.7% for the Nasdaq, rich in technology stocks.
However, as everyone knows, inflation in the United States is holding on (still + 3.5% over twelve months in March over one year), and the time is therefore no longer for a rapid decline in rates, as the Fed was still discounting it in December 2023, forecasting at the time at least three reductions in the cost of money in 2024. “We do not believe it will be appropriate to cut rates until we have greater confidence that inflation is moving sustainably towards 2%.”, warned Mr. Powell. He announced that he would leave the monetary institution’s rates unchanged as planned – they are at their highest for more than twenty years, between 5.25% and 5.5% –, deploring that recent statistics have been “above expectations” on the price rise front and noting “lack of progress” recent in this area. “It is likely that it will take longer than expected to gain such confidence,” added the central banker.
As a result, slowly but surely, Wall Street declined, understanding that rates were set above 5.25% probably for a long time. The S&P 500 index and the Nasdaq then took a nosedive, both ending Wednesday’s session down around 0.33%. “Here is the rise in the market that has gone down the drain”, sneered trader Mark Minervini. Since the start of the year, ten-year interest rates – the yield on government bonds – have risen sharply, going from 3.93% to 4.63% on Wednesday.
Throughout his conference, Jerome Powell insisted that monetary policy was “restrictive”, that the labor market had ” cooled “, with the decline in resignations and job offers, and he added, “We believe that over time this will become sufficiently restrictive. That will be a question that the data will have to answer.” But “3% is not a number we can be satisfied with. So we will bring inflation down to 2% over time”he clarified.
You have 58.19% of this article left to read. The rest is reserved for subscribers.