Federal Reserve Chair Jerome Powell put a damper on the bull rally, after saying that a December rate cut isn’t a “foregone conclusion” as a divided central bank tries to operate on limited visibility. Stocks came off their highs Wednesday following the start of Powell’s post-meeting news conference. The Dow Jones Industrial Average was closed lower by 74 points, or 0.2%, after climbing as high as 0.7% at the highs of the day. The S & P 500 was little changed, after rising 0.4%, previously. The Nasdaq Composite alone was higher, up 0.6%, as investors awaited the release of megacap results after hours. Investors were widely anticipating a quarter-point rate cut at the conclusion of Wednesday’s Fed meeting, but it’s what Powell said about December that was always going to be a wild card for markets. Not only is the central bank flying blind in the absence of any government data, it’s also dealing with an unusual amount of dissent among its own ranks. Fed Governor Stephen Miran called for a half-point cut, while Kansas City Fed President Jeffrey Schmid voted for no decrease. “In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December,” Powell said. “A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.” Here are Wall Street’s reactions to the Fed chair’s latest comments. Chris Zaccarelli, chief investment officer at Northlight Asset Management: “This is a great example of the market being forward-looking because the immediate news – a rate cut and the end of quantitative tightening (and the beginning of automatic buying of bonds) – are both positives for stocks and bonds, however, markets already expected this and were negatively surprised that future cuts might be taken off the table.” Jack McIntyre, portfolio manager at Brandywine Global: “At a time when it’s flying with only one eye open, the Fed decided that the softening in the labor market is a bigger concern than the stickiness of inflation. This stance makes sense given that labor statistics are lagging economic indicators and monetary policy works with a lag. So for October, the Fed wanted to err on the side of a further rate cut. What makes less sense is the odd range of dissents. Miran’s call for a larger cut could be dismissed as too dovish. But Schmid’s call for no cut combined with Powell’s comments during the press conference, in which he said he wants to put some daylight between the Fed’s view of potential future rate cuts with the market’s view for December, can’t be easily dismissed. This divergence means less complacency in financial markets, more volatility, and more two-way flows.” Jeffrey Roach, chief economist at LPL Financial: “The downside risks within the job market will likely ensure the Fed will continue to cut rates in December and throughout the next year. See forecasts below.” Ryan Detrick, chief market strategist at Carson Group: “The Fed didn’t rock the boat and cut interest rates by 0.25%, as was widely expected, while also leaving the door wide open for another cut in December. Chairman Powell acknowledged the potential issues in inflation, but a weakening labor market outweighed those worries and allowed for this cut and likely future cuts.” Michael Pearce, deputy chief US economist at Oxford Economics: “The decision to lower interest rates by 25bps in October was never in doubt, but the unexpected hawkish dissent from a regional Fed president highlights that future moves are becoming more contentious. We expect the Fed to slow the pace of cuts from here. Our view is predicated on a stabilization in labor market conditions, which is a difficult call amid the dearth of official data.”
