Bullish investors took heart at Powell’s comments at the end of Wednesday’s monetary policy meeting
A more dovish-than-expected message from Federal Reserve Chairman Jerome Powell stands to further boost hopes of slowing rate hikes and a so-called economic soft landing that have fueled a powerful rebound in U.S. stocks.
“At this point, the market has welcomed the fact that a couple of more increases at 25 basis points basically means just marginal adjustments,” said Alessio de Longis, senior portfolio manager at Invesco Investment Solutions. “The light at the end of this monetary cycle is coming.” To be sure, Powell gave little indication that the Fed was close to veering from its rate hike trajectory after it announced a widely expected 25 basis point rate increase. He said “a couple more” rate increases likely lay in store.
“I think they do see a path where you can get that soft landing, that Goldilocks-type scenario play out,” he said.Plenty of investors nonetheless heard a less dovish message from Wednesday’s meeting, with many skeptical that policymakers would be able to bring down the highest inflation in decades without hurting the economy.
Meanwhile, a key part of the Treasury yield curve, which inverted in March last year for the first time since 2019, remained deeply in negative territory, with yields on shorter-dated debt standing above those on longer-dated bonds, a time-honored recession signal. “Do people think will be in response to inflation that has been coming down or something more dramatic, in terms of economic slowdown? I would think the latter,” said Fran Rodilosso, head of fixed income ETF portfolio management at VanEck.
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