Medicare Agent News: Jerome Powell's Subtle Shift

Wednesday, June 22, 2022

Jerome Powell's Subtle Shift

By Alex Eule | Wednesday, June 22

'Some Pain.' Another rally, another disappointing follow-up. In a sign of investors' lingering worries, the major indexes all edged lower Wednesday, a day after their 2%-plus gains. Investors spent the day looking for additional clues about the Federal Reserve's rate-hiking strategy. Chairman Jerome Powell was on Capitol Hill for the opening of his two-day tour of Congressional committees -- the Senate was today, the House is tomorrow.

"It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all," Powell told members of the Senate Committee on Banking, Housing, and Urban Affairs.

Powell has gradually, and subtly, changed his language around the fate of the U.S. economy, my colleague Lisa Beilfuss notes today:

Perhaps the most significant new information Powell offered on Wednesday was a change—if subtle—in his discussion of recession concerns. After shifting in recent months from “soft” to “softish” and then to “bumpy” and involving “some pain,” the chair more directly acknowledged a recession is going to be hard to avoid as the central bank is focused on cooling inflation from a 40-year high. The question is whether markets believe what Powell said.

“Recession is certainly a possibility. Frankly, the events around the world over recent months make it harder [to engineer a soft landing,]” Powell said, referring to the war in Ukraine and Covid-19 lockdowns in China that are exacerbating food and energy inflation and supply-chain problems.

The frank recession talk didn't help stocks today, but it might benefit drivers at the pump. A slowing economy would reduce demand for oil, and those fears are already having an effect on the market. Crude oil fell 3% on the day, to $106.19 a barrel, the lowest settle since May 12. Oil is off 14% since its March 8 peak of $123.70.

Energy stocks were the worst performing sector in the S&P 500, down 4% on the day.

"What has changed fundamental wise?" Michael Tran, analyst at RBC Capital Markets, asked in a note to clients today. "Not much, nada, zilch, but macro concerns of a recession are clearly dominating sentiment."

Barron's Avi Salzman notes that prices have started to fall at the pump, albeit slowly. National prices now average $4.95 a gallon, down from more than $5 last week. High prices may have begun to impact demand, as well, he writes:

As for gasoline, there’s already some evidence that consumers are using less of it as prices rise. U.S. gasoline demand was down to 9.1 million barrels last week from 9.4 million a year ago, according to the Energy Information Administration. And data from energy-data provider OPIS reviewed by The Wall Street Journal shows that demand at gas stations is down 8.2% year over year.

Avi also explains the likely limited impact of President Joe Biden's new proposal for a gas tax holiday. Read the rest of his story here.