💃 Powell's waltz

Plus: A dollar update | Thursday, December 01, 2022

Open in app View in browser   Presented By Walmart   Axios Macro By Neil Irwin and Courtenay Brown · Dec 01, 2022 There was another benign inflation reading for October, this time from the Federal Reserve's preferred Personal Consumption Expenditures Index. Stripping out food and energy costs, prices rose just 0.2% after two straight months of 0.5% increases. In today's edition of Macro, Fed chair Jerome Powell's increasingly complicated waltz with financial markets. Plus, some late-night comedy with Janet Yellen on getting her signature just right before it goes on the dollar. 💵 🇨🇭 Next month, Axios will be at the 2023 World Economic Forum in Davos, Switzerland. Want to attend one of our events? Request an invite. Today's newsletter, edited by Javier E. David and copy edited by Katie Lewis, is 669 words, a 2½-minute read.     1 big thing: Powell's dance with markets Fed chair Jerome Powell at his speech yesterday at the Brookings Institution. Photo: Valerie Plesch/Bloomberg via Getty Images   In a speech yesterday, Powell's message was that the Fed's interest rates plans are pretty much identical to what they were a month ago at its last policy meeting. Yet over the course of that month, the yield on 10-year Treasury bonds is down by nearly half a percentage point, and stocks and other risky assets have rallied. That reflects the latest turnabout in a curious waltz between Powell and financial markets. Why it matters: To understand the economic and market environment likely to prevail in 2023, you have to understand how Powell is trying to take the lead in this dance. But frequently, markets won't let him. The big picture: The Fed needs financial conditions to remain tight to ensure its rate hikes filter through the economy as desired: slowing demand and helping bring down inflation. But markets are primed to see a policy pivot back toward cheaper money around every corner. That creates a dynamic in which every time Powell tries to add nuance to his message, indicating that the Fed doesn't intend to overtighten and cause more economic pain than necessary, stock and bond markets rip higher in a counterproductive fashion. Then, Fed policymakers give a round of speeches in which they try to tamp down buoyant markets. The most prominent version of this was Powell's Jackson Hole speech, which was almost comically direct and simplistic in its message. Between the lines: We read yesterday's talk at the Brookings Institution as simply affirming the early November message and adding meat to how Fed leaders view the economy. At its meeting later this month, the Fed will start raising rates more slowly — probably 0.5 percentage points after four consecutive 0.75 percentage point hikes — but it will keep pushing rates higher than expected a few months ago, and keep them there for longer. The surge in markets since that talk yesterday — the S&P 500 rose 3.1% on the day — looked like investors interpreted the absence of Jackson Hole-style bluster as a sign of a policy pivot nowhere to be found in Powell's actual words. What they're saying: "The most important thing to keep in mind is that Powell absolutely, positively, 100% did not say anything new yesterday," said Piper Sandler's Roberto Perli and Benson Durham in a client note. So why did the market react as it did? "Many investors may have feared a speech that introduced new hawkish elements; when Powell ended up sounding somewhat less hawkish than feared, the market underwent a significant relief rally," they added. What's next: Powell's next chance to lead this dance comes Dec. 14, with a news conference following the Fed's policy meeting.     A message from Walmart Walmart helps save families up to 75% on insulin     Since June 2021, families across America have saved more than $15 million on insulin. Thanks to Walmart's low-cost private brand, shoppers can save up to 75% off the cash price of branded insulin. Learn more about how Walmart helps families live better.     2. 💵 What Yellen has been practicing Photo: Scott Kowalchyk/CBS   The U.S. treasury secretary appeared on "The Late Show with Stephen Colbert" last night. There were plenty of silly moments — including whether her former Federal Reserve colleagues wore robes and sacrificed goats before deciding what to do with interest rates. (The answer is no!) But there was some news, too, that dealt with a long-standing tradition for leaders of the Treasury Department. After a lengthy delay, Yellen's signature will very soon appear on the U.S. dollar. Next week, Yellen plans to visit the plant where the first sheets of currency bearing her signature have been printed. Catch up quick: Arguably one of the coolest parts of serving as the treasury secretary is your signature on all U.S. banknotes. But Yellen's hasn't appeared yet, for a bureaucratic reason. New money can't be issued until the White House nominates a treasurer, whose name also appears on the dollar. That appointment of Marilynn "Lynn" Malerba didn't happen until June, and she was officially sworn in this fall. Yellen said her predecessors made at least one mistake she won't repeat: Signatures of former Treasury Secretaries Jack Lew and Timothy Geithner were so illegible that they became a punchline. What they're saying: "I knew that this was something that you could screw up, and I wanted to get it right. I practiced and I practiced," Yellen told Colbert.     A message from Walmart Walmart helps families save on the things they need most     Over 37 million Americans have diabetes. With Walmart, they can save up to 75% compared to the cash price of branded insulin. This adds up to more than $15 million saved across America since June 2021. 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