Allow me to vent for a sec. I’m sick and tired of writing about the Federal Reserve. The central bank’s monetary policy deliberations overshadow all financial discourse. I often resent the overweening clout wielded by these unelected bureaucrats who bestride the Wall Street-Washington axis of power.

Okay, with my cri de coeur out of the way, let’s see how Fed Chair Jerome Powell once again proved that he’s not only the most powerful man in America, but also in the world.

During a speech Wednesday at the Brookings Institution, Powell asserted that smaller interest rate increases are likely ahead, perhaps starting this month. He warned that monetary policy will remain restrictive until there’s clear and lasting progress in curbing inflation, but he struck a softer tone.

Powell said: “It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting.”

Stocks immediately jumped on Powell’s remarks and closed Wednesday sharply higher.

Pundits obsessively chew over Federal Reserve policy, sort of like my Maine coon with his catnip toy. It’s easy to see why.

Responsible for managing the globe’s currency franca, the Fed has long been the world’s most influential central bank. Its policy decisions have a direct impact on global exchange rates, speed up or reverse the flow of funds into and out of the United States, and generally make life easy or difficult for the world’s other central bankers.

In contrast to his past public performances, Powell on Wednesday refrained from sounding unduly hawkish and talking down the markets. Investors heaved a collective sigh of relief. The long-coveted dovish pivot…finally within grasp!

A batch of major economic news arrived Thursday that further enhanced bullish sentiment.

Inflation is cooling, and yet economic growth remains on track (albeit muted). The U.S. Bureau of Economic Analysis (BEA) reported Wednesday that U.S. third-quarter gross domestic product grew at a 2.9% year-over-year rate, based on its second estimate.

On Thursday, the BEA reported that the core personal consumption expenditures (PCE) price index rose 0.2% in October, below the estimate of 0.3%. The core index (which strips out volatile food and energy costs) increased 5% year over year, down from the 5.2% annual rate in September. That compares to the 40-year high of 5.4% last February.

The PCE is the Fed’s preferred inflation gauge, because it’s a broader measure than the more popularly known consumer price index (CPI). The yearly rate of all-items PCE slowed to 6% in October from 6.2% in the previous month.

In separate government reports Thursday, personal income climbed 0.7% for the month, beating the 0.4% estimate, and consumer spending rose 0.8%, as expected. Weekly jobless claims came in at 225,000, a decline of 16,000 from the previous week and below the 235,000 estimate.

The upshot: Inflation is easing but the economy isn’t cratering. The major U.S. stock market indices opened higher on Thursday, but wavered later in the day as bellwether companies such as Salesforce (NYSE: CRM) delivered weak guidance. Stocks closed mostly in the red, in choppy trading, as follows:

• DJIA: -0.56%
• S&P 500: -0.09%
• NASDAQ: +0.13%
• Russell 2000: -0.26%

After Wednesday’s Powell-induced surge, equities took a breather Thursday. Investors now await Friday’s jobs data for further clues to the Fed’s intentions.

Seer, soothsayer, and sage…

Whenever Powell stands ready to address the public, I always hear in my head this introduction of a Johnny Carson schtick, uttered by Ed McMahon: “And now, the great seer, soothsayer, and sage, Carnac the Magnificent.”

The Fed tries to strike a balance between the twin dangers of recession and inflation. Is the Fed on the verge of pulling off a so-called soft landing? Powell on Wednesday was asked by a reporter to look into his crystal ball, and he obliged: “We have a good chance to have a soft or softish landing.”

Powell added that’s because both households and businesses sport strong balance sheets and the robust labor market “doesn’t seem to be anywhere close to a downturn.”

It’s revealing that fears of a recession are waning in corporate C-suites. According to a study of corporate earnings calls to date, research firm FactSet found a 26% quarter-over-quarter decline in the number of S&P 500 companies citing the term “recession” on earnings calls for the third quarter (179) relative to the second quarter (242). See the following chart:

This growing optimism partly explains the back-to-back monthly gains that the major U.S. equity benchmarks racked up in October and November. The period between now and New Year’s historically marks a bullish year-end sprint for U.S. stocks. The momentum this year seems to have staying power.

Read This Story: Addressing Inflation Misconceptions

We’re approaching Christmas with a tailwind. We’ll see if the final month of 2022 will be naughty or nice for investors.

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John Persinos is the editorial director of Investing Daily. You can reach John at: mailbag@investingdaily.com

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