Dovish, then Hawkish: What Fed Chairman Powell said that sent markets crashing

US stocks rallied after the FOMC raised 75 basis points in interest rates, only to tumble when Fed Chairman Powell hinted at higher-than-expected terminal rates.

The Federal Open Markets Committee, the U.S. central bank body responsible for setting monetary policy, raised interest rates by 75 basis points for the fourth consecutive time on Wednesday as Federal Reserve governors attempt to to tackle stubborn levels of inflation in the country.

Jerome Powell, chairman of the Federal Reserve and FOMC, joined a group of reporters for a news conference shortly after the data was released, further shedding light on the central bank’s thoughts on future action.

Markets reacted positively to the 0.75% hike in interest rates, which went as expected, but trading became more volatile as the president began his speech. While the written statement announcing the interest rate decision showed a new dovish phrase, further fueling the rally, Powell’s press conference combated that sentiment as the Fed Chairman reiterated previous guidance.

“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.” , says the FOMC statement, hinting at a more dovish Fed.

Powell, however, pointed out that “the ultimate level of rates will be higher than expected”, triggering a sharp downturn in the market.

The sentiment the markets have is to confirm that a slowdown is near but surprising for the terminal funds rate, which can be evidenced by the rise and subsequent fall of the S&P 500 Index.

Dovish, then Hawkish: What Fed Chairman Powell said that sent markets crashing
The S&P 500 soared at 2:00 p.m. EST (2 p.m.) as soon as the FOMC statement was released with the most dovish language, only to drop again when Powell’s press conference began thirty minutes later. Investors likely left the livestream with a bitter taste in their mouths, judging by the index’s continued declines. (Chart/TradingView)

Bitcoin mirrored the movements of the stock market, although it fell less in percentage terms. As of this writing, BTC is accumulating a 1% drawdown, while the S&P 500 ended the trading day with more than double that amount (2.39%). The Nasdaq suffered a similar fate, but extended its losses to 3.15%.

The fact that Bitcoin has been the least volatile of the three is quite remarkable as it completely defies history and mainstream media narratives. Although the peer-to-peer currency is always correlated to stocks, it is not the one that makes the most severe fluctuations, and this goes unnoticed.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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