Powell's missed opportunity

So much for trying to control the markets.

Last week, Federal Reserve Chair Jerome Powell had the chance to push back against investor optimism that policymakers will issue around five quarter-point cuts next year. While FOMC voters admitted on Wednesday that the tightening cycle is likely over, penciling in 75 basis points of rate cuts in 2024 per the Summary of Economic Projects, a significant gap remained between the two. Had Powell used his press conference following this announcement to tell the markets cool their jets, their expectations might have met Fed projections.

Instead, he said monetary policy likely had reached its peak and even acknowledged the FOMC had discussed when it might ease. Because Powell said that participants had the time to take the relatively unchanged Consumer Price Index numbers for November into account, the markets were jubilant. Traders reacted by shifting to full throttle, priced in nearly six quarter-point cuts in 2024, continuing the disconnect with the Fed. Who is correct—Fed or markets—won’t be known until the first cut actually comes unless Powell and other officials actually challenge investors. The stakes are high as the Fed tries to avoid pushing the economy into a recession due to their fight against inflation.