The More Powell Spoke, the More Stock and Bond Markets Rallied

Behind closed doors, Federal Reserve policy makers worry rallying markets are impeding their efforts to control inflation. But every time Jerome Powell goes out in public he gives them more room to run.

When the Fed chairman took to the podium Wednesday afternoon, stock markets were hovering around their session lows. The central bank had just delivered an eighth straight rate hike and signaled more were to come, and some of the uber-bullishness on display in markets this year had faded a little.

By the time Powell was done speaking some 45 minutes later, stocks had soared. The S&P 500 reached its intraday high, up 1.8%, and traders were also quickly bidding up prices on Treasuries, corporate bonds and crypto.

Powell may have intended to deliver a stern message that the Fed still had a lot of work to do to tame inflation but that’s not what investors heard. Instead, they heard a chairman who indicated he was seeing clear evidence of slowing consumer price increases and who didn’t seem particularly bothered by the January rally in markets.

For the second straight meeting, the very first question he was asked at the press conference was whether he was worried about the rally creating easier financial conditions that could hamper his inflation fight and, once again, he chose not to push back hard. “Our focus is not on short-term moves, but on sustained changes” to financial conditions, he said.