Federal Reserve Chairman Jerome Powell signaled that financial conditions may be tighter than they appear , and market pros took that to mean there could be less rate hiking from the Fed. But it also signaled to markets that the economy could be hit harder by fallout from regional bank worries and tighter financial conditions, as banks restrict lending to businesses and consumers. Powell spoke Wednesday afternoon, after the Fed raised rates by a quarter point and released a forecast that showed a high rate of 5.1% this year. The Fed funds rate range is now 4.75% to 5%. “The market’s in a tough spot. Are we going to celebrate the end of Fed rate hikes because things have started to hit the fan?” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “Not only are things hitting the fan, and the Fed acknowledged it, but he said we’re not cutting rates either. To say, we have credit challenges ahead, and we’re not cutting interest rates, that’s not the best combination.” Treasury yields fell , but stocks seesawed and then fell sharply, with the S & P 500 down 1.7% . Treasury Secretary Janet Yellen was also speaking Wednesday afternoon. She said the Treasury will do whatever it takes to ensure deposits are safe. But she warned there could be more bank runs like the one at Silicon Valley Bank and regulations may need to be toughened. Strategists pointed to Powell’s comment that financial conditions may have tightened more than it appears in traditional market measures, which would be stocks and bond spreads. That would mean bank lending has contracted more than a reading on financial conditions would imply. “I think what he was trying to do was a separate financial stability from monetarty policy,” said James Caron, head of macro for global fixed income at Morgan Stanley Investment Management. “Number one, he remains unwavering on inflation, and he does acknowledge he sees a tightening of credit conditions. … I think it’s still a balance. Does…
Read the full article here