Powell Spurs Market Optimism During Press Conference

Equities and bonds rally following FOMC announcement/presser. Treasurys were in high demand today, the 2 and 10-year yields decreasing 9-10 bps after the Fed announced their 25 bp hike and gave their press conference. Equities flourished as well after starting the session down, with Fed Chairman Powell spurring a major boost to the S&P 500 (+1.05%) and NASDAQ (+2.00%). Earnings releases were headlined by Meta Platforms, who reported sales that topped estimates on strong demand for advertising, leading to a +2.79% share boost on the day.

Fed signals optimism around early deflation signals, but highlights elevated wages and continued service sector inflation. Today’s messaging from the Fed offered some notable shifts from prior language about the state of inflation, but also hammered home the need for continued rate hikes in the face of a strong labor market and persistent service-sector inflation. In their statement, the FOMC noted that “inflation has eased somewhat but remains elevated,” and also hinted at the cessation of hikes when referring to thinking about the “extent of future increases” instead of the “pace.” In his comments, Chair Powell also stated that the “disinflation process has started,” and that the recent labor-cost report was “constructive.” Still, he remarked that “it would be very premature to declare victory” in the fight against inflation and said that a decision has not yet been reached on the terminal rate. A side-by-side comparison of today’s Fed statement vs. December’s meeting can be read here.

Day ahead. Tomorrow’s economic data calendar will be limited, with initial jobless claims and factory order figures as the highlights. Both reports are expected to be higher than prior levels, with initial jobless claims expected to come in 9k higher at 195k and factory orders predicted to increase to 2.3% from -1.8% last month.