Powell quiets stock cacophony by scoffing at U.S. recession talk

While history suggests it won’t last, an emotion approaching euphoria descended on equity markets Wednesday after U.S. Fed Chair Jerome Powell persuaded investors his first interest rate hikes in four years won’t throttle the economy.

While history suggests it won’t last, an emotion approaching euphoria descended on equity markets Wednesday after Federal Reserve Chair Jerome Powell persuaded investors his first interest rate hikes in four years won’t throttle the economy.

Markets initially shuddered after the quarter-point increase was announced, but quickly found their footing as Powell made a point of repeatedly affirming the pace of economic growth. The Fed chief reported scant evidence of a downturn anytime soon, saying probability of a recession in the next year is “not particularly elevated.”

Indexes rebounded sharply in the aftermath, with the S&P 500 closing more than 2 per cent higher after briefly erasing gains as Powell began speaking. The Nasdaq 100 Index soared 3.7 per cent, the most in a year.

The buoyancy attests to how quickly the perception of threats has evolved in risk markets. Once, pronouncements of economic confidence were enough to shock stocks because of the cover they provide for rate hikes. Now such commentary is cause for celebration as anxiety about a recession becomes the larger concern.

“Jobs are stronger than ever. The unemployment rate is lower than pre-COVID, basically. Consumer spending is quite healthy. Consumer savings remains at all-time highs at US$2.7 trillion,” said Sylvia Jablonski, CEO and CIO of Defiance ETFs. “It’s really hard to think about how we would go into a recession.”