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What experts are saying about the market’s reaction to Powell’s press conference

Scott Gamm

After hitting a record high, the stock market sold off after Federal Reserve Chair Jerome Powell’s press conference on Wednesday.

Initially, the release of the FOMC statement at 2 p.m. ET Wednesday sparked a market rally. The S&P 500 (^GSPC) hit session highs, near the intraday record high it hit earlier in the session. In the statement, the Fed said inflation was running below its 2% target — that’s a sharp change from its March statement, which said inflation was running near its 2% target. The latest inflation reading (core personal consumption expenditure price index) rose only 1.6% year-over-year. The nod to lower inflation gave investors hope that a rate cut was in the cards. Heading into Wednesday’s FOMC meeting, the market was pricing in a greater than 60% chance of a rate cut by the Fed’s December meeting.

But it was Powell’s comments in the press conference, which started at 2:30 p.m., that spooked investors. Powell seemed to throw cold water on the idea of a rate cut by calling the recent slowing of inflation “transitory.”

That sent the S&P 500 down 1% in just a matter of two hours. The index closed the session at 2,923.73.

Here’s what top Wall Street analysts are saying about the market’s reaction:

Nick Colas, co-founder, DataTrek Research

“I think equities got a little too far out ahead of the Fed. Fed funds futures still think a rate cut this year is 50/50. But stocks may have shaded that more like 70/30 yesterday and Powell is more like 30/70 with his ‘transitory’ comment.”

Stephen Guilfoyle, former NYSE Trader and President of Sarge 986, LLC

“The market had to unpack some probability [of a rate cut] that had already appeared to be priced in. It's not wrong to remain patient on inflation if the economy is growing at 3%. Let Q2 GDP develop, if it's awful, then act. Powell is not off base on this.”

JJ Kinahan, chief market strategist, TD Ameritrade:

“The market didn’t know what to make of what Chair Powell was saying - it’s not that he said the ‘wrong’ thing. While he mentioned that he’s comfortable with the current range [of inflation], he also used the word ‘transitory’ a few times and in a few different ways. ‘Transitory’ language lessens the probability of a rate cut.”

Danielle DiMartino Booth, a former Federal Reserve advisor, author of Fed Up and CEO of Quill Intelligence:

“Markets were expecting Powell to at least drop a hint that the Fed would be open to an insurance rate cut later this year after QT ends in September, and with good reason. We’re not talking about a District Fed president here but rather Richard Clarida, Vice Chair of the Federal Reserve Board who came from PIMCO and has a great understanding of financial markets and is Powell’s chief lieutenant. It’s Clarida who has been public about the validity of an insurance rate cut, citing 1995 and 1998 as two cases in point when the Fed cut rates even without clear signs that a recession was imminent. Reporters prodded Powell to give a hint and he refused. Markets reacted in kind.”

Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

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