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Jonathan Levin

Powell Smartly Swears Off Guidance But Then Doles Some Out

Even so, markets weren’t listening closely, or traders opted to hear what they wanted to hear.

Are you paying attention?

Are you paying attention?

Photographer: Ting Shen/Bloomberg 

Federal Reserve Chair Jerome Powell made waves in financial markets Wednesday by saying that rate increases will eventually slow and that he will refrain from “clear guidance” on the path of future ones. That contributed to the huge rally in stocks and bonds Wednesday, with the Nasdaq Composite Index posting its biggest jump since April 2020. The funny thing is, Powell actually did provide quite a bit of forward guidance in his press conference after the central bank’s rate decision — traders just opted to ignore it.

So why would financial markets celebrate these comments anyway? It’s complicated, but the general idea is that the Fed isn’t as set in its commitment to higher interest rates as originally thought. It’s open to making policy as the data dictates. Of course, the Fed has a dual mandate to promote maximum employment and stable prices, and the US economic expansion is clearly coming to a crossroads. Naturally, some investors think that incoming data on a softening economy could scare the Fed away from further tightening.