Powell Warns Another Hot Jobs Report Could Trigger More Rate Hikes—Here's What That Means For The Stock Market
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Stocks whipsawed Tuesday after Federal Reserve chairman Jerome Powell said further increases to the federal funds rate may be necessary to tame inflation, heightening fears over the central bank’s crucial upcoming decision on interest rates as Wall Street continues to react sharply to the Fed’s whims.

Key Facts

If there are more “strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in,” Powell said in an interview with Carlyle Group billionaire David Rubinstein, his first public comments since the Labor Department revealed Friday the unemployment rate sank to a 54-year low last month.

Powell has previously indicated that the labor market must cool considerably for the Fed to diverge from its most aggressive rate hikes in decades in an effort to tamp down inflation, which is in the “​​very early stages” of noticeably slowing, Powell said earlier in the interview.

Stocks have declined considerably as the Fed hiked the federal funds target rate from 0% to 0.25% to 4.5% to 4.75% over the last year, with the Dow Jones Industrial Average, S&P 500 and tech-heavy Nasdaq each down 6% or more since the start of 2022.

Investors continued to pick apart Powell’s every word Tuesday as Wall Street searches for any signs of future interest rate cuts or slowdowns, considering higher rates impact borrowing costs and cut into corporate profits.

The Dow, which rose nearly 400 points after Powell said there were signs of easing inflation, slid as much as 500 points, or 1.5%, after Powell’s comments on rate hikes, before staging a massive comeback for a 220-point gain on the day, or 0.6%.

The rollercoaster rally during and after Powell’s interview came because Powell declined to deliver a new, “incrementally hawkish” message after Friday’s jobs report stoked fears he’d give a more concrete indication sustained rate hikes are on deck, Vital Knowledge founder Adam Crisafulli wrote in a Tuesday note to clients.

Key Background

The Fed increased its funds rate, which sets overnight borrowing costs for banks and trickles into other loans such as mortgages, by 25 basis points last week, a slower bump than the 0.5% in December and far less than the four-straight 75 basis-point increase earlier in 2022. The CME Group’s closely-followed FedWatch tool increased its probability Tuesday that the Fed will again raise interest rates by 50 basis points from 3% to 9%, pricing in a 91% chance another 0.25% will be next. Powell’s fixation on the labor market follows an oft-cited economic concept that unemployment must rise for inflation to decline. The unemployment rate will likely rise soon as tens of thousands of recent layoffs, many in the technology sector, are incorporated into the next dataset, wrote Comerica economist Bill Adams.


Tuesday’s most notable gainers were Alphabet and Microsoft, each of which gained about 4% as the technology giants rolled up their sleeves in their budding rivalry in artificial intelligence-powered search. Microsoft announced Tuesday that it will use ChatGPT parent OpenAI’s technology to power Bing, while Google unveiled Bard, its answer to ChatGPT, Tuesday.

Surprising Fact

Bed Bath & Beyond was the worst-performing stock Tuesday with a market capitalization of more than $200 million, falling nearly 50% after the struggling home goods company announced a bold plan to raise money to pay off its mounting debt. Wedbush Securities downgraded its price target for Bed Bath & Beyond to $0 correspondingly.

Further Reading

Fed Official Warns U.S. Debt Default Would Be ‘Catastrophe’ As Bank Of America Gears Up For The Worst (Forbes)

Does The Fed Want You To Lose Your Job? It’s Complicated. (Forbes)

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