Do Fed Officials Talk Too Much?

When driving around in my 14-year-old Volvo S40, I typically listen to oldies on SiriusXM. I heard this song yesterday and it made me think of the officials at the Federal Reserve: “You Talk Too Much,” a 1960 hit by New Orleans singer Joe Jones.

In recent days, Fed officials have been making hawkish statements about monetary policy. Their words have helped drive bond yields higher and stocks lower.

Don’t get me wrong: I think the Fed has done an excellent job of balancing its “dual mandate” of fostering growth while curbing inflation. But I also wish the Fed’s apparatchiks would stop preening for the news media and just stick to their jobs. It’s annoying to see the markets reverse course and head lower, in real time, as a Fed official is thinking out loud.

Case in point: In remarks Tuesday during a panel discussion in Washington, DC, Fed Chair Jerome Powell emphasized the Fed isn’t persuaded yet that inflation is moving toward the central bank’s 2% target.

“The recent data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence,” Powell said. “If higher inflation does persist, we can maintain the current level of restriction for as long as needed.”

Powell’s remarks represented a clear shift in tone from his previous statements. The equity markets tanked in response.

Most of Powell’s minions have been echoing his newly downbeat stance. Federal Reserve Bank of New York President John Williams told the press Thursday: “We’ve got interest rates in a place that is moving us gradually to our goals, so I definitely don’t feel urgency to cut interest rates.”

Atlanta Fed President Raphael Bostic told a business group, also on Thursday, that he doesn’t expect a rate cut until the end of the year. “I’m not in a mad-dash hurry to get there if all these other good things are happening,” Bostic said during an appearance before the Greater Fort Lauderdale Alliance in Florida. “Right now, our stance is restrictive.”

In fact, some Fed officials, such as Governor Michelle Bowman, have recently broached the possibility of raising rates again if future readings don’t show inflation coming down more sharply.

That rate cut we were expecting in June? To quote New Jersey entrepreneur Tony Soprano: Fughedaboutit.

After starting 2024 by pricing in as many as six rate cuts this year, or 1.5 percentage points of easing, traders are now doubtful we’ll even see a half point of reductions.

Powell strongly indicated at the DC confab on Tuesday that Wall Street should get accustomed to higher-for-longer rates. He suggested the central bank may carry out fewer than the three quarter-point reductions its officials had forecast during its most recent policy-making meeting in March.

All of this public opining has put investors in a sour mood. The following chart shows that the S&P 500, as measured by the benchmark SPDR S&P 500 ETF (SPY), is losing momentum (data as of market close April 18):

The SPY has fallen below is 20- and 50-day moving averages, as investors start to worry that we might not get any rate cuts this year.

Rather than implement orderly monetary transitions, as the Fed did under earlier regimes, the now-excessive communication has been (in my view) generating unnecessary market volatility. Where’s the laconic Alan Greenspan when you need him?

After rallying by more than 10% in the first quarter of this year, returns in the month of April so far have been less enticing for the S&P 500, with the index lower by about 4.4%. Each sector has declined for the month except communication services, which has notched a slight gain of less than 1%.

And yet, I’m still bullish over the stock market’s prospects this year. Economic growth remains resilient and corporate earnings are projected to show healthy gains.

I’ve been predicting pullbacks such as we’ve seen in recent days. The robust pace of the rally has made stocks pricey. Keep in mind, market pullbacks are normal. On average, the S&P 500 undergoes about three 5% pullbacks per calendar year.

So, while Fed officials yak away, you should take advantage of pullbacks to add quality investments to your portfolio. That’s your silver linings playbook for the near term.

In the meantime, the stock market continues to stumble. The main U.S. stock market indices closed mostly lower Thursday as follows:

  • DJIA: +0.06%
  • S&P 500: -0.22%
  • NASDAQ: -0.52%
  • Russell 2000: -0.26%

The benchmark 30-year U.S. Treasury yield (TNX) jumped 1.35% to surpass 4.64%. The overvalued stock market was looking for an excuse to blow off some froth; talkative Fed officials have provided the catalyst.

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John Persinos is the editorial director of Investing Daily.

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