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Powell Exudes Confidence, Hawks Get Louder and Cases Rise

The Federal Reserve Open Market Committee (FOMC) met on Wednesday and elaborated on their decision not to raise rates or adjust the pace of asset purchases. Given the re-emergence of healthcare concerns around the Delta variant, there was much attention on the tone Powell struck with regards to the emerging risk. He exuded confidence on the issue and didn’t think that the Delta would severely derail the timeline to begin reducing the ultra-accommodative posture the central bank has kept since the emergence of the Coronavirus in 2020. Powell also admitted that recent inflation numbers had caught him and his colleagues off guard. However, he stuck to the transitory inflation narrative, as expected.

Powell does have a point. The post-pandemic recovery went better than anyone expected (except for perhaps my colleague Tom Lee) and recent data shows that the US economy has now eclipsed its level of pre-pandemic output. Similarly, to downside panics, the many positives like a strong consumer balance sheet and the lean and mean corporate entities that emerged from a near-apocalypse appear to be creating positive economic momentum that will be hard to stop without the blunt instrument of lockdowns, which we think politicians in heavily vaccinated countries will continue to avoid.

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