Market Is Up Despite Hawkish Powell Interview

At his May 4 press conference following the latest meeting of the FOMC, he reassuringly stated: “I think we have a good chance to have a soft or softish landing....” After the stock market closed on Thursday, May 12, we all learned that Powell pivoted further to the hawkish dark side, yet the stock market didn’t tank Friday morning. It rose smartly, instead. In an interview on Thursday with Marketplace, Powell said the following:(1) “What we can control is demand, we can’t really affect supply with our policies. And supply is a big part of the story here. But more than that, there are huge events, geopolitical events going on around the world, that are going to play a very important role in the economy in the next year or so. So the question whether we can execute a soft landing or not, it may actually depend on factors that we don’t control.”

(2) “So you can see that inflation is just way too high here in the United States. And by the way, the same all over the world, really, the global economies all around the world have been hit by a series of inflationary shocks...."(3) “Well, look, I think it’s a very challenging environment to make monetary policy. And we certainly, our goal, of course, is to get inflation back down to 2% without having the economy go into recession, or, to put it this way, with the labor market remaining fairly strong. That’s what we’re trying to achieve. I think the one thing we really cannot do is to fail to restore price stability, though.”(4) "But I would just say, we have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than when we expect, then we’re prepared to do more.”(5) “There’s too much demand. For example, in the labor market, there’s more demand for workers than there are people to take the jobs, right now, by a substantial margin. And, because of that, wages are moving up at levels that are unsustainably high and not consistent with low inflation. And so what we need to do is we need to get demand down, give supply a chance to recover and get those to align.”(6) “We know that what Paul Volcker did was right in his situation, and it’s something like that might turn out to be right here.”