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lite.cnn.com - on gopher - inofficial
ARTICLE VIEW:
Stocks wobble after Powell warns that rate cuts will likely come
later than expected
By Bryan Mena, CNN
Updated:
4:11 PM EDT, Tue April 16, 2024
Source: CNN
US stocks wavered Tuesday after Federal Reserve Chair Jerome Powell
said a “lack of further progress” on inflation means the central
bank likely won’t cut interest rates at its upcoming policy meeting
just two weeks away, keeping them higher for longer.
Stocks seesawed after Powell’s comments, closing mixed Tuesday. The
Dow rose 64 points, or 0.2%. The S&P 500 fell 0.2% and the Nasdaq
Composite lost 0.1%.
Meanwhile, the 2-year Treasury yield topped 5% on Tuesday before
retreating below that threshold to about 4.96%.
“The recent data have clearly not given us greater confidence” that
inflation is headed toward the central bank’s 2% goal, Powell said
during a moderated discussion hosted by the Wilson Center. Instead, he
said, there are indications “that it is likely to take longer than
expected to achieve that confidence.”
“Right now, given the strength of the labor market and progress on
inflation so far, it’s appropriate to allow restrictive policy
further time to work and let the data and the evolving outlook guide
us,” the Fed chief said.
Interest rates are currently nestled at a 23-year high after the Fed
launched an aggressive rate-hiking campaign two years ago. Inflation is
down considerably from a four-decade peak reached in the summer of
2022, but recent inflation reports have shown persistent price
pressures in services and housing.
Higher borrowing costs, coupled with elevated prices for essentials,
have . And while the US economy and the job market remain on strong
footing, higher mortgage rates have all but stalled the housing market.
But the latest retail sales report showed that , and marks the latest
shred of evidence that the economy remains solid, leaving the Fed in no
rush to cut rates.
The central bank typically reduces rates whenever the economy sharply
weakens because it is also mandated by Congress to achieve maximum
employment, in addition to stable prices. There is currently no sign of
a sharply deteriorating job market.
“Fed Chair Powell moved more decidedly in a hawkish direction as he
essentially underscored that the downward trajectory of inflation has
essentially stalled,” Quincy Krosby, chief global strategist at LPL
Financial, said in a note Tuesday.
Stalling progress on inflation
Powell’s comments Tuesday don’t come as a surprise and they largely
echo what other Fed officials have said in recent speeches, which is
that the Fed isn’t considering cutting rates just yet.
But the Fed chief’s remark that there hasn’t been “further
progress” on inflation is a pivot from his comment last month that
recent inflation reports may have been firmer than expected simply due
to “seasonal fluctuations.”
Consumer prices , according to the latest Consumer Price Index, a
considerable increase from February’s 3.2% rise and above what
economists estimated in a FactSet poll. It was the third straight month
that the CPI surprised to the upside.
Rising gas prices have recently pushed up inflation overall, but
shelter and insurance costs have came also in hot. Consumer prices in
the services sector broadly have proven to be stubborn. The Fed’s
favorite inflation measure, the Personal Consumption Expenditures price
index, also hasn’t given Fed officials much reassurance that
inflation is under control.
Persistently robust economic growth could be preventing inflation from
drifting lower. It also remains to be seen whether productivity growth,
which can help keep inflation in check, will continue to . The
conventional wisdom is that if workers are producing more with less,
then the economy can continue to expand without stoking inflation or
keeping upward pressure on prices.
The Atlanta Fed is currently projecting first-quarter gross domestic
product to register at a solid 2.9% annualized rate.
First rate cut in the summer?
Wall Street already wasn’t betting on a rate cut in May, but some
analysts are estimating the first cut could come some time in the
summer. Analysts at Goldman Sachs, JPMorgan and Nomura are estimating a
first rate cut in July.
Once the Fed is reassured that inflation is headed toward 2%, it’s
unclear if the Fed would signal in a policy meeting that it plans to
cut at the next one — and how it would exactly do that. The Fed
practices a concept known as “forward guidance,” which is
communicating to financial markets and other observers what its rate
decisions will likely be.
Meanwhile, analysts at Wells Fargo, Bank of America, Barclays and
Deutsche Bank are currently forecasting the first rate cut to come
after the summer, as late as December.
“My baseline outlook continues to be that inflation will decline
further, with the policy rate held steady at its current level, and
that the labor market will remain strong, with labor demand and supply
continuing to rebalance,” Fed Vice Chair Philip Jefferson said in a
speech Tuesday.
“Of course, the outlook is still quite uncertain, and if incoming
data suggest that inflation is more persistent than I currently expect
it to be, it will be appropriate to hold in place the current
restrictive stance of policy for longer,” he added.
As stocks settle after the trading day, levels might change slightly.
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