Wall Street finally gets the Fed's message on interest rates: Morning Briefing

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Thursday, September 22, 2022

Today’s bulletin is from Jared Bleecker, Yahoo Finance’s markets-focused reporter. Follow him on Twitter @SPYJared.

Stocks are finally listening to Jay Powell and the Fed.

In a long-awaited move on Wednesday, the Federal Reserve raised the benchmark interest rate by 0.75 percentage points after raising it by a similar amount in its previous two meetings. Powell & Co. also sprung a big surprise, raising expectations for further increases this year and next to a possible terminal rate of 4.6%.

The Dow, Nasdaq Composite and S&P 500 ended the day down about 1.75%. This is in stark contrast to the rally after the previous meeting in July, which was perhaps also quite hawkish.

What has changed since July? In August, Powell told the Fed’s annual meeting in Jackson Hole, Wyoming, that the central bank would raise interest rates to “the job is done“reducing inflation.

Powell’s uncharacteristically short and direct message at Jackson Hole appears to be the deciding factor for markets. It doubled on Wednesday.

WASHINGTON, DC - SEPTEMBER 21: US Federal Reserve Board Chairman Jerome Powell looks at notes as he speaks during a press conference following a meeting of the Federal Open Market Committee (FOMC) at Federal Reserve Headquarters on September 21, 2022 in Washington, DC.  Powell announced that the Federal Reserve is raising interest rates by three-quarters of a percentage point.  (Photo by Drew Angerer/Getty Images)

WASHINGTON, DC – SEPTEMBER 21: Powell announced that the Federal Reserve is raising interest rates by three-quarters of a percentage point. (Photo by Drew Angerer/Getty Images)

“My core message hasn’t changed since Jackson Hole,” Powell said at a news conference Wednesday. “The FOMC is committed to reducing inflation, and we will continue to do so until the job is done.” Stocks be damned.

Looking ahead to the two remaining meetings in 2022, markets are adjusting to the likelihood of a fourth 0.75% in October and 0.50% in December.

Former Fed chief Larry Mayer went a step further, forecasting a 0.50% hike in February and 0.25% in March to complete the cycle. That puts the Fed’s benchmark rate at 5.00% to 5.25% – a full 2.00 percentage points above the rate set on Wednesday.

Powell and his colleagues may have slept soundly last night knowing that Wall Street got the message that interest rates will continue to rise — even if investors don’t necessarily like what they’re hearing.

What to watch today

Economic calendar

  • 8:30 a.m. ET: Current account balanceQ2 ($-260.8 billion expected, -$291.4 billion in previous quarter)

  • 8:30 a.m. ET: Initial unemployment claimsweek ended September 17 (218,000 expected, 213,000 in previous week)

  • 8:30 a.m. ET: Continuing Claimsweek ended September 10 (1,400 expected, 1,403 in previous week)

  • 10:00 a.m. ET: Leading indexAugust (-0.1% expected, -0.14% in the previous month)

  • 11:00 a.m. ET: Kansas City Fed. Manufacturing activitySeptember (5 expected, 3 in previous month)

Profits

  • Costco (PRICE), Darden Restaurants (DRI), FactSet (FDS), FedEx (FDX)

Yahoo Finance Highlights

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