Powell Delivers a Subtle Message to Markets

At first glance, it would appear that Federal Reserve Chairman Jerome Powell stuck to the script in prepared testimony to the Senate Banking Committee by saying a healthy U.S. economy has faced some “crosscurrents and conflicting signals.” Although that’s nothing he hasn’t said before, there was still something potentially significant for markets in Powell’s delivery.

In describing those crosscurrents, the first thing Powell highlighted was how “financial markets became more volatile” at the end of last year and how “financial conditions are now less supportive of growth.” He then talked about economic fundamentals and how “growth has slowed in some major foreign economies, particularly China and Europe.” Mentioning financial markets before the economy is as clear a signal as any that the Fed’s top priority is preventing another plunge in the stock market like the one in December, which many suspected was the real reason the Fed officially pivoted toward a more dovish stance in January. “Keeping asset prices elevated is officially the #3 mandate of the Federal Reserve,” Bleakley Financial Group chief investment officer Peter Boockvar wrote in a note to clients. The Fed’s first two mandates are full employment and stable consumer prices. In that context, Powell’s testimony should only further cement the idea of a “Fed Put” that underpins riskier assets. In that context, it’s little wonder that the S&P 500 Index, which was down as much as 0.24 percent, rebounded to rise as much as 0.25 percent before ending the day little changed in the face of lower earnings and growth forecasts.