Powell's Testimony Was Bullish Enough

By Nicholas Jasinski |  Tuesday, January 11

Bullish Chair. During the waning calm before the earnings season storm making landfall later this week, Wall Street was largely focused on Washington today. On Capitol Hill, Federal Reserve chief Jerome Powell took questions from the Senate Banking Committee, which is considering his renomination as chairman of the central bank.

Recent Fedspeak and last week's minutes from the Federal Open Market Committee's December meeting have leaned hawkish. Bond yields have surged over the past few weeks as investors have priced in more possibility of faster and larger interest rate increases in 2022 and 2023. That, in turn, has weighed on stocks.

In today's remarks, Powell didn't reveal any new surprises. He emphasized the Fed's ability and willingness to act to counter high inflation ("If we see inflation persisting at high levels longer than expected, if we have to raise interest rates more over time, then we will") while arguing that the strength of the U.S. economy justified the same tightening ("It is really time for us to move away from those emergency pandemic settings to a more normal level").

Barron's Megan Cassella and Sabrina Escobar have all the highlights from today's proceedings here.

That confidence in and emphasis on the health of the recovery seemed to inspire some bullishness among investors. As my colleague Jacob Sonenshine summed it up today: "Stocks just needed a little reassurance that the economy is going to be OK, and Fed Chairman Jerome Powell did just that."

Stock indexes turned higher as Powell spoke, erasing their morning losses.

The Fed chief's remarks outweighed today's news on the pandemic front, which included the headline that Covid-19 hospitalizations in the U.S. had reached a record high. Separately, Pfizer's CEO said that his company and its partner BioNTech had already had started manufacturing a formulation of their vaccine that specifically targets the Omicron variant of Covid-19.

The S&P 500 closed up 0.9%, the Dow Jones Industrial Average added 0.5%, and the Nasdaq Composite jumped 1.4%. Over in the bond market, the 10-year U.S. Treasury note yield slid below 1.75% today, after touching 1.8% in recent sessions.

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