The Federal Reserve and investors appear to be locked in what one veteran market watcher has described as an epic game of “chicken.” What Fed Chair Jerome Powell says Wednesday could determine the winner.
Cruisin’ for a bruisin’? To some market watchers, investors now appear way too big for their breeches. They expect Powell to attempt to take them down a peg or two. In Powell’s case, that would likely mean emphasizing that the labor market remains significantly out of balance, calling for a significant reduction in job openings that will require monetary policy to remain restrictive for a long period, Torres said.
Powell and the Fed have certainly expressed concerns about the potential for loose financial conditions to undercut their inflation-fighting efforts. Major indexes fell to begin the week, with the Dow Jones Industrial Average DJIA, +1.09% falling 261 points, or 0.8%, as it snapped a six-day winning streak. The S&P 500 SPX, +1.46% shed 1.3% and the Nasdaq Composite dropped 2%.
Jackson Hole redux Torres sees the setup heading into this week’s Fed meeting as similar to the run-up to Powell’s speech at an annual central banking symposium in Jackson Hole, Wyoming, last August, in which he delivered a blunt message that the fight against inflation meant economic pain ahead. That spelled doom for what proved to be another of 2022’s many bear-market rallies, starting a slide that took stocks to their lows for the year in October.
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