After several trading sessions with the S&P 500 (SPY) marching higher, the streak ended. The index fell by 0.54%, while Nasdaq (QQQ) closed lower by 0.66% on Tuesday.
Fed Chair Jerome Powell lamented the lack of risk-free policy paths ahead. This scared the stock markets. Powell said that the challenging situation is that the “near-term risks to inflation are tilted to the upside and risks to employment to the downside.”
This sounds like stagflation. Either way, the FOMC moved its neutral rate lower to address the pressure on the job market. Job creation rates are below a breakeven rate. As a result, it is not keeping the unemployment rate constant. Fortunately, several other labor market indicators indicate stability.
The Fed has a mandate of achieving full employment and stable prices. Powell said that the bank cannot aggressively cut rates, which could increase inflation. A restrictive policy that lasts too long would hurt the labor market.
Bank stocks like JPMorgan Chase (JPM) did not react to the speech. Conversely, Bank of America (BAC) and Citigroup (C) fell slightly. In the bond market, the 20+ Year Treasury Bond ETF (TLT) gained 0.62% to close at $89.32. The 7-10 Year Treasury Bond ETF (IEF) closed at $96.74. IEF stock has a bearish double top pattern at around $97.50.
