Fed Chair Jerome Powell all but confirmed a taper, but the stock market continues to rise.
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The Federal Reserve was more hawkish than expected—and the stock market feels fine.
At the end of its two-day meeting Wednesday, the Fed indicated that tapering could begin as early as its next meeting in November, with the so-called dot plot showing nine Fed governors predicting rate increases in 2022. Even Chairman Jerome Powell said that 2022 rate increases wouldn’t be out of the question if inflation became unmoored.
It was a surprising outcome that should have been the recipe for a selloff. Instead, the
Dow Jones Industrial Average
looks set to gain more than 800 points over two days.
What gives? For starters, when it came to the taper, at least, the market got what it expected, says the Sevens Report’s Tom Essaye. Tapering will likely happen in November or December, and it will run at about $15 billion a month so it can end in mid-2022. “From a market standpoint, the Fed news wasn’t bullish or bearish as it was already priced in,” Essaye writes. “But it does remove the potential for a negative surprise, which for a market with a short-term confidence problem is a positive occurrence.”
Plus, it’s possible Powell is becoming a better communicator. Under him, the
S&P 500
has had the worst post-press conference performance of any Fed chair, with the index up an average of about 0.2% before the conference starts, according to Bespoke Investment Group data, and finishing down about 0.1% on the day. The fact that the S&P 500 held on to its gains shows that Powell didn’t say anything to freak investors out during this conference.
But he might have done more than that. RegentAtlantic’s Andy Kapyrin credits Powell with beginning the discussion on rate increases so the market can start pricing them in. “The markets will view this with relief because the announcement held no surprises and leaves little room for big surprises down the line,” Kapyrin writes. “Instead of a tantrum, this announcement and the ones that follow it may be viewed as a relief.”
Don’t forget that the market had been selling all month, with the S&P 500 down 4% from its Sept. 2 all-time high heading into Wednesday. It’s possible that the market had already done what it usually does—react ahead of time. There’s a reason Wall Street says sell the rumor, buy the news.
Whatever the reason, it’s time to sit back…
Read More: What Is the Stock Market Doing Today? Why Investors Don’t Fear Fed’s