Markets Rally Friday After Mixed Jobs Numbers, But Down on The Week After Hawkish FOMC Press Conference Prompt Rate Fears

Markets were down for the week after Wednesday’s FOMC meeting poured cold water on dovish hopes but rallied on Friday after mixed jobs data. Chairman Powell said that it was “premature” to consider a pause. Also, the Chairman specified he would prefer to overtighten, though he did not think they had done so yet, rather than take the pressure off too early. The consequences of a stop-start policy can lead inflation to become entrenched and more difficult for the Fed to vanquish.

While Mr. Powell was hawkish, there have been some green shoots for the doves recently. Fed officials are increasingly commenting that their tools might not be able to affect certain inflation drivers. The Fed’s task right now is incredibly fraught with risk. The labor market is still hot, energy and food remain volatile, and the stock market itself is overvalued relative to bonds.

The key developments from the FOMC meeting were:

Markets were disappointed in their hopes Powell would show some light at the end of the tunnel. He ended up doing the opposite and suggested that next month’s Summary of Economic Projections (SEP, or “dot plot”) would be higher than what was released in December.While he did open the path for a potentially lower rate hike, the fact the ...