Market Extra: “There’s no Fed pivot”: Wall Street finally gets the message as stocks swoon after Powell speech

by | Aug 26, 2022 | Stock Market

Federal Reserve Chairman Jerome Powell’s brief, but blunt Jackson Hole speech on Friday sparked a sharp selloff in stocks and other financial assets as Wall Street reacted to his vow to bring inflation back down to the central bank’s 2% goal. The S&P 500
SPX,
-3.37%
finished 141.46 points lower, or 3.4%, to 4,057.74. The Dow Jones Industrial Average
DJIA,
-3.03%
plunged 1,008.30 points, or 3%, to end at 32,283.40, its worst daily percentage decline since May 18. The Nasdaq Composite
COMP,
-3.94%
was off 497.56, or 3.9%, to settle at 12,141.71, its worst daily fall since June 16.

“Reducing inflation is likely to require a sustained period of below-trend growth,” said Powell in a highly anticipated speech at this year’s Jackson Hole economic policy symposium on Friday. “While higher interest rates slower growth and softer labor market conditions will bring down inflation,” he added. “They will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation, but a failure to restore price stability would mean for greater pain.” See: Fed’s Powell says bringing down inflation will cause pain to households and businesses in Jackson Hole speech “I think what he’s trying to reiterate to the markets, so that market prices have prepared, is that there’s no pivot,” said Jim Caron, chief fixed income strategist at Morgan Stanley Investment Management. “What Powell was really trying to hammer-home and (what) people on the FOMC do is that ‘we’re not letting people think we turn more dovish’.” Investors were waiting all week for Powell’s speech for clues to the central bank’s likely next steps as it attempts to tame high prices that have ratcheted up the cost of living. While the speech wasn’t part of a central bank policy meeting, when rate decisions typically happen, many investor were bracing for an aggressive tightening message that could dash hopes for a rate pause, or even a cut next year. “Markets have fallen down because there was a narrative that was floated around, believed by many, that there was a pivot by the Fed,” Caron told MarketWatch on Friday. “One of …

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