Stocks fall after Powell reiterates Fed will continue to raise rates to fight

‘Eight minutes. The market has been sitting there doing nothing all week, just for eight minutes,’ Wells Fargo’s Michael Schumacher says

“He hit the right notes,” said Wells Fargo’s Michael Schumacher, noting that the chairman’s speech has to be the shortest ever from a chairman at Jackson Hole.

“Eight minutes. The market has been sitting there doing nothing all week, just for eight minutes,” he said.

— Sarah Min, Patti Domm

Consumer sentiment data beats expectations

A better-than-expected reading for the University of Michigan consumer sentiment index may be helping to offset Jerome Powell’s hawkish speech at Jackson Hole.

The final reading for the August consumer sentiment index came in at 58.2. That was up from 51.5 in July and above the 55.3 expected by economists, according to Dow Jones.

Year-ahead inflation expectations fell to 4.8% from 5.2% in July. That marks the lowest reading in eight months.

— Jesse Pound

Powell reiterates Fed will continue to raise rates to fight inflation

Fed Chairman Jerome Powell reiterated that the central bank will continue raising rates to subdue inflationary pressures. He also warned, however, there may be “some pain” ahead as these measures take hold.

“Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy,” Powell said in a speech at a Jackson Hole, Wyoming symposium.

—Fred Imbert, Jeff Cox

Bonds quiet ahead of Powell speech, futures positioned for rate cut next year

Treasury yields were mixed, ahead of Federal Reserve Chairman Jerome Powell’s Jackson Hole speech at 10 a.m. ET.

The 10-year yield was higher at 3.05%. The 2-year yield, which is most driven by Fed policy, was slightly lower at 2.38%. Yields move opposite price. Trading was light.

“It’s sleeping, just waiting for the big event,” said Wells Fargo’s Michael Schumacher. “There’s no motivation right now. You could be dead wrong by a lot. Most people think it will be a non-event, but why take the risk.”

The chairman is expected to emphasize that the Fed will be relentless in using its policies to drive down inflation, though the futures market has been pricing in a quarter point rate cut for the second half of next year. He is also expected to stress that once the Fed raises interest rates to its terminal rate, or end rate, it will likely hold them there.

The fed funds futures market is pricing in some significant hikes, including the 64 basis points of a hike in September, notes Schumacher. That pricing reflects the current market debate on whether the Fed will raise rates by another three-quarters points or slows to a half point hike at its Sept. 20 and 21 meeting.

“Right now, the market is pricing 3.62% for the end of this year, and the peak to be about 3.78% in March,” said Schumacher. The Fed has currently targeted the fed funds rate in a range of 2.25% to 2.50%.

— Patti Domm

Crypto buying is fading and recession uncertainty could send prices lower, Citi says

As stocks climbed off their mid-June lows, the market value of cryptocurrencies rose almost 40%, thanks largely to the 72% jump in ether. That momentum has cooled off now, however, as investors have been reassessing the sustainability of the relief rally in risk assets broadly and wait to see what Fed Chairman Powell says in Jackson Hole.

“Our view is that risks related to a mild recession are likely discounted,” the firm said in a note Friday. “But the potential for a hard recession (our macro colleagues expect S&P EPS to fall in 2023 and question the excitement around 8.5% inflation) may result in another risk asset correction including crypto/digital assets.”

— Tanaya Macheel