This article first appeared in the Morning Brief. Get the Morning Brief delivered straight to your inbox by 6:30am ET Monday through Friday. Subscribe to
Tuesday, September 20, 2022
Today’s newsletter is here Sam Rothe author of TKer.co. Follow him on Twitter at @SamRo.
One of the Federal Reserve’s most revealing statements about the markets came from Chairman Jerome Powell on June 15, when the Fed announced its largest rate hike since 1994:
“Throughout the year, financial markets have responded and generally shown that they understand the path we are charting.”
By the time Powell said this, the S&P 500 had fallen more than 20% from its Jan. 4 high.
In other words, Powell all but confirmed that the 2022 market slump was exactly what he and his peers wanted.
As if that wasn’t clear enough, Minneapolis Fed President Neel Kashkari echoed that sentiment on Aug. 29 when he said he was “happy” to see the stock market fall. That comes after Powell reiterated his commitment to fighting inflation — even if it means “some pain for households and businesses.”
Incidentally, this isn’t the first time Powell has used “pain” to describe what it would take to bring inflation down. At a Wall Street Journal event on May 17, he said, “Restoring price stability could bring some pain.”
To recap, inflation has been persistently high. To get prices under control, the Fed believes demand in the economy needs to cool. To cool demand, the Fed is levering interest rates to tighten funding conditions, making things more expensive for businesses and consumers to finance. Tighter financial conditions include higher interest rates, a stronger dollar and lower stock valuations.
This speaks to the conundrum in the markets: as long as inflation is uncomfortably high, the Fed will act in ways that aren’t good for stock prices.
And as we learned from last week’s CPI report, inflation remains uncomfortably high.
This prepares us for this week’s FOMC meeting, which takes place on Tuesday and Wednesday. Unless the Fed unexpectedly announces a change in its anti-inflation approach, expect a hawkish announcement.
It’s possible that markets will interpret Powell’s message as dovish on Wednesday, which happened after July’s FOMC meeting. If that’s the case, don’t be surprised if Fed officials come out and reiterate that the Fed still has a long way to go to reach its long-term inflation target of 2%.
What to see today
8:30 a.m. ET: building permitAugust (1.610m expected, 1.674m in previous month, revised to 1.685m)
8:30 a.m. ET: building permitMoM, August (-4.8% expected, -1.3% mom, revised to -0.6%)
8:30 a.m. ET: living beginsAugust (1.445 million expected, 1.446 in previous month)
8:30 a.m. ET: living beginsMoM, August (0.3% expected, -9.6% mom)
Yahoo Financial Highlights
FedEx sits in the penalty box after a profit warning: strategist
Netflix’s ad-supported tier could put the company ‘back to growth mode’: analyst
Builders become increasingly desperate as buyers back out
For the latest stock market news and in-depth analysis, including events moving stocks, click here
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance App for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, flipboard, LinkedInand youtube