Powell’s Debut Stirs Talk of a “Fourth Hike”

Markets are all about expectations and when those expectations change or are modified, volatility ensues. Fed Chair Powell’s first congressional testimony roiled markets and true to the contrarian nature of news relating to rates: “good” news roiled the markets. The new Fed Chair indicated his “personal outlook for the economy has strengthened since December“ and that “fiscal policy has become more stimulative.” The Feds possible response: “further gradual increases” are the preferred method to “promote attainment” of the Fed’s desire to stabilize prices at full employment. With markets previously expecting three hikes this year (March, June, December most likely), the language was enough to create speculation of four hikes this year. The question is, how will Powell react to his market moving remarks? Was that his intention? Will he be more or less direct in future remarks? His predecessors (Bernanke and Yellen) both became more opaque after triggering major volatility (Bernanke “Taper Tantrum” and Yellen’s discussion of rate hike timing). Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners