Economy & Markets

The Fed raised the key short-term interest rate by another 75 basis points at the September FOMC meeting, but the big news wasn’t the well-anticipated rate increase. It was Chairman Powell’s remarks at the press conference.

After the bear market rally in July was extended for the first few weeks of August, Federal Reserve Chairman Powell used the Fed’s annual Jackson Hole symposium to clarify the Fed’s position on future rate increases. Powell was clear that there would be no “Fed Pivot” until improvements in the inflation rate are sustained.

In reference to the Wizard of Oz, the Fed lion has found the courage to increase interest rates drastically, the inflation tiger is still ambushing the economy, and now the stock market is flirting with bears. The question for investors is: Are we still deep in the forest? Or is that the Emerald City on the horizon? To extend the metaphor – that wizard wasn’t much help, and the solution to the problem turned out to be a liquidation.

After a barely positive May, June saw the bear market return across indices. We ended up with the worst first half performance since 1970. A mid-month surprise 75 basis point rate hike at the June FOMC meeting, followed by Fed Chairman Powell’s testimony to Congress in which he indicated aggressive rate increases at the July and September meetings, convinced markets that inflation is the priority for the Fed.

July marked the best month for the markets since November 2020.What happened, after the rout of the first half?