The Fed vs. the Market

By Alex Eule |  Wednesday, June 10

Powell vs. the Market. The Federal Reserve ended its two-day meeting without making any changes to interest rates, but the Fed still managed to send a clear message to investors: Get used to near-zero rates. The Fed all but promised its target range of zero to 0.25 for the federal funds rate would remain in place through 2022.

During a virtual press conference this afternoon, Federal Reserve Chairman Jerome Powell said: "We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates."

That commitment to dovish policies comes despite last week's stunningly strong jobs report in which some 2.5 million jobs were added to the economy.

In describing the jobs surprise, Powell said: "It’s a pretty good illustration of just how uncertain these times are." In other words, don't get complacent. Things are changing fast and they could go in either direction. 

"The unemployment report was a welcome surprise," Powell added, "but we have to be honest: It’s a long road."

The Fed chairman reiterated his mantra about doing whatever it takes to keep the economy going: "We are going to be deploying all of our tools in pursuit of those goals however long it takes."

Powell's commentary felt disconnected from a market that has rallied 43% from its March lows.

"In complete opposition to the stock market, the Fed continues to see the glass as half empty," Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said today. He added:

We continue to believe that rates will be lower for longer and Fed accommodation is here to stay for the foreseeable future, but we are concerned that the economy may run hot, while the Fed remains concerned about deflation.  If that’s the case, we could continue to see speculation and other bubbles begin to form in the short run.

While investors usually love the prospect of low interest rates, Powell's pessimism ruled the day. After briefly rising on the Fed's rate statement, stocks fell during Powell's news conference. The S&P 500 finished the day down 0.5%, while the Dow Jones Industrial Average lost 282 points, or 1%. 

Tech stocks, of course, remained oblivious to it all. The tech-heavy Nasdaq Composite rose 0.7%, to close at an all-time high. Apple and Microsoft now have market values north of $1.5 trillion. As Eric Savitz wrote on Barrons.com: "It was the first time any company has ever hit that valuation level, and the longtime rivals crossed the line together."