U.S. Markets Misread Powell And Stocks Are Hurting: Barron's

Initially encouraged by Jerome Powell’s repeated insistence that disinflationary forces are at work after Friday’s big jobs report, traders are now focusing on the part in which he said more work needs to be done.

Photo Insert: Markets that were confidently pricing in interest-rate cuts by the end of the year suddenly aren’t so sure anymore.

Atlanta Fed President Raphael Bostic was explicit—if the labor market stays tight, the Fed will have to raise rates by more than previously expected, Brian Swing reported for Barron’s Daily newsletter.

Both stocks and bonds retreated for a second day on Monday. Markets that were confidently pricing in interest-rate cuts by the end of the year suddenly aren’t so sure anymore. Powell’s speech at the Economic Club of Washington will have the chance to correct misperceptions.

But he has talked for months about the need for financial conditions to tighten in order for the Fed’s past interest-rate increases to be fully effective. It looks like that’s what’s starting to happen.

Stocks have rallied since hitting a low toward the end of last year. Yet, the picture from earnings season is by and large not that pretty. Companies—with the possible exception of big oil—are preparing for a slump, trimming guidance and slashing jobs.

President Joe Biden delivered his State of the Union address on Tuesday evening. He probably won’t spend much time talking about stocks and bonds. But if he did, he might remark that its markets, not the Fed, that looks ready to pivot.

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