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What Fed Chair Powell Said and What the Markets Heard

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What Fed Chair Powell Said and What the Markets Heard

In this week’s episode of the Cocktail Investing Podcast, mixologists Lenore Hawkins and Chris Versace parse the testimony from new Fed Chief Jerome Powell delivered before Congress this week.
 

Why you ask? One reason was the investing herd’s reaction as the stock market dropped a quick 300 points following Powell’s comments during the Q&A session. Second, as we’ve been saying, the market is increasingly focused on what the Fed says and may do when it comes to monetary policy. This has made the Fed the market safety net over the last several years, but what did Powell say that might signal, as Bob Dylan sings, “the times are a-changing.”

We know the stock market and its investors are no fans of change, let alone a potentially abrupt one, but when Lenore and Chris look at the crop of economic data through their thematic lens, it leads to more than a few questions about the vibe that Powell was trying to lay down.

While Powell sounded a bit more hawkish than his predecessor Janet Yellen, we find it a challenge to get overly bullish only the economy when the Citibank Economic Surprise Index goes negative for the first time in 18 months, and more data is missing expectations instead of knocking it out of the park. True to form, Powell once again voices the view that the lack of inflation is “transitory” but as Lenore and Chris there are several thematic reasons to think it’s more of the new normal than not.

Related: Should You Be Worried About the Return of Volatility?

Is Powell laying the groundwork for what’s to come or simply using a common Fed Chairperson tactic of the last decade – jawboning to get the stock market in line and reset investor expectations? We discuss that and much more as we parse the Powell testimony, and share our views on what’s really going on when viewed through the lens of thematic investing.

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