(Bloomberg) -- Just in case financial markets didn’t get Jerome Powell’s hawkish message last week, they got it Monday when he made it abundantly clear that the Federal Reserve is coming hard for inflation, even if it means slowing the economy.
The reaction on Wall Street was swift. Stocks gave up gains and slid more than 1%, while Treasuries extended losses that took the two-year Treasury yield past 2.1%. But just like last Wednesday, an initial freakout turned into a more benign decline, with the S&P 500 down just 0.3% as of 2:50 p.m. in New York.
Here’s what traders and money managers were saying about the market’s relative resilience in the face of a hawkish central bank.
Sam Stovall, chief investment strategist at CFRA:
“I think it’s pretty consistent. He’s always been sort of a data person. He is letting us know that he’s not influenced by politics. Really, the direction is from the data. Hearing him say that sentence would not have been a surprise to me. So, I’m sort of surprised that the market is surprised. The Fed has already told us that it’s going to likely raise rates by seven times this year and then a terminal rate of 2.75%. We already know that. I sort of feel as if the market’s response has more to do with digesting the gains from last week because we had four consecutive days.”
Mike Bailey, director of research at FBB Capital Partners:
“Powell is waking everyone up after investors got comfortable with a narrative that the Fed’s got your back. Last week, investors gravitated to a theme of a soft landing, with the Fed as the wizard behind the curtain. But this week, Powell is back saying hold on, the Fed’s main focus is jobs and inflation, and risky assets are secondary. Perhaps Powell is trying to steer investor sentiment away from a ‘buy anything’ mentality, which started to catch fire last week.”
Fiona Cincotta, senior financial markets analyst at City Index:
“Fed Chair Powell is clearly on a mission to bring down inflation this year, and is prepared to take aggressive action if deemed necessary. With robust economic growth and a strong labor market Powell has good reason to think that the economy can handle a steep path to policy normalization. The USD has barely reacted to the comments, mainly because he reiterated the message from last week. The Fed could well try and front load the rate hikes, because the longer the Ukraine war continues, the greater the uncertainty and the bigger the risk to global economic growth.”
Scott Ladner, chief investment officer at Horizon Investments:
“He is reiterating the shift in primary policy imperatives that he laid out last week, essentially shifting from a ‘jobs at any cost’ monetary policy stance to a ‘kill inflation at any cost’ stance. I think it is as short-sighted as labeling inflation ‘transitory’ nine months ago, but that is the tack they are clearly taking, so doesn’t really matter whether anyone thinks it is right or wrong. Global economy is already slowing and supply chains are already easing, but they are hell-bent on making it clear to the market that their only job right now is to bring down current readings of CPI. If they have to reverse course and deal with a mild recession in 6-12 months, they’ll just have to do that.”
John Roque, head of technical strategy at 22V Research:
“My only comment is that I’m sure Jay Powell got tired of reading comments saying that the market was not taking him and the Fed seriously on their desire to attack inflation.”
Kim Forrest, founder and chief investment officer at Bokeh Capital Partners:
“I am not alarmed at what Powell said. He is reiterating the Fed’s dependence on data to inform their moves. I think he talked about the 50 basis-point increases as an example of what they might have to do – not what they are going to do. He ran through the risks that the markets are facing and it was reasonable. Finally, although the Fed’s rates certainly drove asset prices higher in the past two years, they are not really the drivers of the increasing prices of goods and services.”
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