Dow Jones: Powell disrupts Wall Street, which starts a turnaround

Jerome Powell dampens hopes of a Fed pivot

Hopes for a Fed pivot were dashed by Jerome Powell’s speech last night. Major U.S. indexes fell Wednesday night, with the Nasdaq 100 and Russell 2000 down more than 3% and the Dow Jones down 1.5%.

The central bank president warned that there remains considerable uncertainty about the level of the federal funds rate target, which could be higher than what officials at the institution estimated in September. Jerome Powell also deemed the idea of ​​a pause in monetary tightening “much premature”, dashing hopes of a pivot.

Powell also clarified that the risks are asymmetric. If the Fed does too much, it can always loosen monetary policy, while if it doesn’t tighten enough, you have real problems. In other words, the Fed would rather take the risk of doing too much than not enough.

The bond market did not remain indifferent. Long interest rates rose slightly, but short interest rates jumped. The US 2-year yield rose 7 basis points on Wednesday and rose 10 basis points on Thursday. It must be said that market operators now expect the Fed’s terminal rate to remain between 5.00% and 5.25% for a longer time (until November 2023 vs earlier July).

The next big catalyst for Wall Street will be Friday’s monthly jobs report. A much larger-than-expected number of job creations would bolster the Fed’s confidence in its ability to tighten monetary policy without causing a recession, adding pressure to markets.

Daily Dow Jones Price Chart – Key Levels


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