The big news out of Federal Reserve Chair Jerome Powell’s told Congress appearance before the Senate today (President Joe Biden has nominated him for another term as head of the Fed) was that if inflation doesn’t come down, the Fed would more aggressively raise interest rates.
“If we see inflation persisting at high levels, longer than expected, if we have to raise interest rates more over time, then we will,” Powell said in a Senate Banking Committee hearing.
Yep the Fed will fight inflation.
“Dog bites man.” Film at 11.
So why have stocks rallied today? As of the close in New York the Standard & Poor’s 500 was higher by 0.92% and the Dow Jones Industrial Average had gained 0.51%. The technology- and banking-heavy NASDAQ Composite was up 1.41% with the NASDAQ 100 ahead by 1.47%. The small cap Russell 2000 pushed 1.04% higher. The iShares MSCI Emerging Markets ETF (EEM) was up 2.31%.
I think the stocks are higher because:
1. Powell didn’t say anything as aggressive about raising interest rates as some of his colleagues have said recently. Which, given that Wall Street had talked itself into a rate hike frenzy over the last few days, was to reassure markets.
2. He confirmed that the Fed was watching inflation, carefully. Which should come as a given but still was reassuring to some investors.
3. He said that while the Fed has the duel mandates of managing monetary policy for full employment and controlled inflation, the Fed sees close to full employment currently and so is putting more attention on managing inflation.
The next real world inflation data we get arrives tomorrow with the January Consumer Price Index (CPI). Headline inflation is expected by economists surveyed by Bloomberg to be up to 7% year over year.
