Federal Reserve Chairman Jerome Powell put a damper on the bull market, saying a December interest rate cut was not a “foregone conclusion” as the divided central bank tries to operate with limited visibility. Stocks fell from Wednesday’s highs following the start of Powell’s post-meeting press conference. The Dow Jones Industrial Average closed 74 points, or 0.2% lower, after rising as much as 0.7% at the day’s high. The S&P 500 index was little changed after rising 0.4% last time. The Nasdaq Composite Index alone rose 0.6% as investors awaited after-hours mega-cap results. Investors had widely expected a quarter-point rate cut at the end of Wednesday’s Fed meeting, but Powell’s comments about December were always a wild card for markets. Not only is the central bank acting blind due to a lack of government data, but it is also dealing with an unusual amount of dissent within the bank. Fed President Stephen Milan called for a half-point rate cut, but Kansas City Fed President Jeffrey Schmidt voted in favor of no rate cut. “During this committee discussion, there were widely differing views on how to proceed in December,” Powell said. “Further cuts in interest rates at the December meeting are not a foregone conclusion. We are far from a conclusion.” Here’s Wall Street’s reaction to the Fed chair’s latest comments. “This is a good example of markets being positive, as the immediate news of a rate cut and the end of quantitative tightening (and the start of automatic bond purchases) are both positive for stocks and bonds,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management. Jack McIntyre, Portfolio Manager at Brandywine Global: “At a time when we’re talking with one eye open, the Fed has decided that a softening labor market is a bigger concern than the persistence of inflation. This stance makes sense, given that labor data lags behind economic data and the effectiveness of monetary policy. That’s why the Fed moved toward further rate cuts in October. What makes it unreasonable is the extraordinary range of opposition.However, Mr. Schmidt’s request for no rate cuts is a combination of the Fed’s view of the possibility of future rate cuts and the market’s expectations in December. Coupled with Mr. Powell’s comments that he wanted to shed some light on the outlook, this divergence cannot be easily dismissed as implying less complacency, more volatility, and more two-way flows in financial markets. “Downside risks to the job market will ensure the Fed continues to cut rates in December and throughout next year,” said Jeffrey Roach, chief economist at LPL Financial. “See forecast below.” “As most expected, the Fed did not rock the boat and cut rates by 0.25%, while leaving the door wide open for another rate cut in December,” said Ryan Detrick, chief market strategist at Carson Group. “While there was no doubt about the decision to cut interest rates by 25 basis points in October, the unexpected hawkish opposition from the regional Fed presidents has made future moves more difficult,” said Michael Pearce, deputy chief U.S. economist at Oxford Economics. “This highlights something more controversial. We expect the Fed to slow its pace of rate cuts from here. Our view assumes stable labor market conditions, which is a difficult call in the absence of official data.”
