Powell drop-kicked the “Fed pivot in March” mantra to the floor today, driving the Dow down more than 300 points (-0.82%), the S&P down 79 points (-1.61%) and the topsy-tech NASDAQ down a major 345 points (-2.23%).
Asked about the March mania, Powell said,
“I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March is the time to do that…. The major averages hit their session lows shortly after the comments.
Wednesday’s session was markedly terrible for the major averages. It was the worst performance for the Dow since December. For the S&P 500, it was the worst day since September, and since October for the Nasdaq.
Ah well, there goes that.
Still, the market tried to seize upon any statement in Powell’s post-meeting Q&A that could support the old pivot narrative. The market, first, plunged after the decidedly hawkish formal committee statement was issued, then it soared back to positive when Powell started sounding a little softer tone in the Q&A, but finally flushed away by the end as it failed to find what it was seeking.
To seize the narrative it wanted, the market focused on one particular phrase change in the Fed’s official wording by ignoring all others:
Still, the central bank did do something traders wanted, which is remove the part of the statement that signaled the central bank still had a tightening bias. The Fed removed a phrase that referred to “additional policy firming.”
It was almost funny but sickeningly sad at the same time to watch financial media tell outright lies, at first, and stumble all over themselves to declare the reasons the Fed’s message was good for stocks; but it all fell to rubble in a hurry. Even Zero Hedge, a proponent of the Fed pivot nonsense for over a year-and-a-half, made it clear this was bad for the pivotheads:
Hawkish Fed Hammers Dovish Market: No Cuts Imminent, Removes ‘Banking System Soundness’ Comment
Oh, yeah, apparently the Fed is no longer so sure the banking system is sound (and that change happened on a day when a major regional bank in NYC saw its stocks tank horrendously because it did what I wrote a few days ago — bought up garbage during the bank rescues and is now choking on it.
As I’ve said, the Fed will finally pivot only when things break badly enough that they have to. The Fed apparently did not see the troubles at New York Community Bancorp as significant enough to affect policy, but they are no longer talking about “banking system soundness.”
ZH also admitted,
The statement was very much more hawkish than expected:
The Fed pushed back aggressively against the dovish market stance:
“The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
One of the points I tried to make the strongest against pivot mania was that, after so much market loosening by stock and bond investors, the Fed would be pressed to do whatever it takes to tighten the screws back up at this meeting. By loosening financial conditions as much as it did, the market undid the one and only thing that caused the Fed to give it a breath hope for a pivot in the first place. Powell had said the Fed might be able to back off from its tightening more quickly if the market kept tightening for the Fed. When the market loosened immediately after that, I said this would force the Fed back into a more hawkish stance. The market’s whimsy was self-defeating.
It appears to have done that today. Whether the lunatic market will hold onto the message for more than a day, who knows; but the stock market certainly started to tighten things back up today. The bond market seems to have missed the message once again, however, with yields falling some. The big tell will be tomorrow when we see how both markets digest today’s FOMC meeting after the initial shock.
I will go into all of this in more depth in my weekend Deeper Dive. For now, I’ll close with a summary statement from Wolf Richter, who has been calling all the markets’ nonsense about a Fed pivot nothing but mania, just as I have:
Wow, Fed’s Statement Pushes Back against Rate-Cut Mania and End-of-QT Mania
The FOMC statement released today by the Fed after its two-day meeting pushed back aggressively against the market’s massive rate cut expectations this year – what we’ve come to call “rate-cut mania” – and it pushed back against the expectations of an early end of QT.
The Fed added entirely new language to its statement, explicitly pushing back against the markets’ rate-cut mania and end-of-QT mania. I don’t think I have ever seen anything like this in an FOMC statement….
It was some powerful punishment to a lunatic market that has been betting on its own opiated fantasies. I’ll go over all of that in the weekend Deeper Dive. For now, suffice it to say, the Fed has made it crystal clear: No March pivot! (Later in the year, when everything lies in economic chaos, well anything becomes possible.)