‘Powell Shock’ US Stock Market Fall 0.71% Complimentary

The US stock market fall as Federal Reserve Chairman Jerome Powell poured cold water on the prospect of an early interest rate cut. Chairman Powell began the interview by saying, “The strength of the economy forces us to approach the question of when to start cutting interest rates cautiously.”

On the 5th (local time) in the New York stock market, the Dow fell 0.71%, the S&P 500 fell 0.32%, and the Nasdaq fell 0.20%. In an interview with the U.S. CBS network the previous day, Chairman Powell said, “We will be cautious about lowering interest rates, and the rate of reduction will be smaller and slower than the market expects.” He appeared on CBS ‘ flagship program ’60 Minutes’ that day and made this remark.

“We would like to see more evidence that inflation is moving sustainably down to 2%,” he said. “Our confidence is growing, but we want more confidence before we cut rates,” he said, The possibility of an interest rate cut in March is high. Of course, the possibility of an interest rate cut in May has also greatly receded.

As Chairman Powell poured cold water on expectations of an early interest rate cut, the U.S. stock market closed lower. By stock, electric vehicle stocks plummeted, with Tesla plummeting by about 4% due to an investment bank’s performance warning. Semiconductor stocks soared nearly 5% thanks to investment banks raising their targets, and the Philadelphia Semiconductor Index, a semiconductor index, also closed more than 1%.

He noted that it is unlikely that the FOMC will make its first rate cut in March, as the futures market expected. He also said, “The speed and extent of interest rate cuts will be slower and smaller than market expectations.”

The market believes that the Federal Reserve will cut interest rates by 1.25 percentage points this year. This means that the interest rate will be cut five times in total by 0.25 percentage points each. However, in the dot plot released by the Federal Reserve immediately after the FOMC meeting in December of last year, the Federal Reserve indicated that it would cut interest rates three times this year. He said, “ The FOMC will update the interest rate forecast in March, but there will be no major changes,” and added, “The time for a cut is approaching, but not yet.”

Immediately after his remarks, government bond yields (market interest rates) rose due to concerns that the high interest rates in the United States would be prolonged. The yield on the 10-year U.S. bond benchmark rose 0.06 percentage points from the previous trading day to 4.08%.

Federal funds rate (US base interest rate) futures traded on the Chicago Mercantile Exchange ( CME ) reflect the probability of the Federal Reserve lowering interest rates by 0.25 percentage points at the FOMC in March at 14.5%. Just two weeks ago, it was above 80%.

The probability of an interest rate cut in May has also fallen. Interest rate futures reflected a 54% probability that the Federal Reserve would cut interest rates by 0.25 percentage points in May. This is lower than 60% the previous day.

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