(Reuters) Nicholas Colas, co-founder of DataTrek Research, who continues to advise caution with respect to U.S./global equities, believes Wednesday's reversal says investors were "caught offsides by a more hawkish than expected Fed."
As Colas sees it, Powell’s over-riding message was that the U.S. economy is strong enough to both merit, and weather, aggressive monetary policy tightening.
Another observation Colas offers is that Powell was purposefully vague about the timing and pace of both rate hikes and balance sheet runoff. That said, Colas thinks Wednesday's press conference "was all about Chair Powell and the Fed communicating to capital markets a more aggressive stance on future monetary policy and making it clear they will move as quickly as they feel they must to curb inflation."
Meanwhile, Michael O'Rourke, chief market strategist at JonesTrading has a somewhat different view, saying that Powell either has no plan or is reluctant to share it.
"You have the highest inflation in 4 decades and full employment, yet Powell repeatedly stated the FOMC did not discuss the details of policy normalization. No talk of the size or pace of interest rate hikes or balance sheet runoff, just denial after denial after denial."
As O'Rourke sees it, the press conference gave the impression that the Fed Chair is slow walking the inflation fight.
In the end O'Rourke says, Powell will breed uncertainty that will be dependent upon inflation, which he argues is "a phenomenon well beyond his control."
"It may take the equity market time to recognize how dangerous this is but keep an eye on the Treasury market to start providing signals once again."
