Federal Reserve Chair Jerome Powell just maintained that the central bank can afford to hold off cutting interest rates as inflation continues to ease and the economy holds strong. Does this mean the stock market crash is off?
Well, if it was ever on, then yes. While stocks fell to start the week following Powell’s commentary last Friday, equities have returned to the green despite similar sentiments from Powell.
Indeed, Powell has been a fixture on the podium lately, making repeated public appearances to largely iterate the same points: Rate cuts will come, the economy is still doing well, inflation is easing.
“Recent readings on both job gains and inflation have come in higher than expected,” Powell said on Wednesday. “The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path.”
With interest rates at 5.3%, Wall Street has hung on Powell’s every word amid hopes that the central bank will lower rates from their highest levels in two decades.
Unfortunately, after months of steady disinflation, the most recent inflation reports have been notably hotter than projected, suggesting the final leg of the war on inflation may prove difficult.
“On inflation, it is too soon to say whether the recent readings represent more than just a bump,” Powell noted in his speech at Stanford. “We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent.”
Stock Market Crash Fears Ease as Powell Reiterates Rate-Cut Expectations
Fortunately, economic data has been so strong otherwise, the central bank has the luxury of holding off on rate cuts for quite some time before facing economic repercussions.
Currently, Wall Street is anxiously awaiting the March jobs report due this Friday, April 5.
The Fed has largely tied its inaction in regard to rate cuts to the strength of the labor market. The U.S. economy has continued to add plentiful amounts of jobs every month, while holding unemployment under 4%.
Should this week’s report maintain that trend, it would strengthen the Fed’s hawkish tone. If the jobs market slows down, though, it would likely hasten the central bank’s monetary timeline.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
