Big Changes On Wall Street As Fed Settles Fears

( Wall Street investors seem hopeful following comments made by Jerome Powell, the chair of the Federal Reserve, on Tuesday, in which he said 2023 should be a year of “significant declines in inflation.”

Following those comments, U.S. stocks ended the day on Tuesday up overall, which could be a positive sign that brighter days are ahead. Investor sentiment seemed to be at least hopeful that the Fed will start to loosen up its monetary policy after being extremely aggressive over the last year or so.

On multiple occasions, the Fed has increased its benchmark interest rate by at least a half percentage point. This was all being done to try to make money more expensive to borrow, which in theory would disincentivize people from spending money, which in theory would start to stamp out inflation and out-of-control prices.

Powell made his comments earlier this week after the monthly jobs report that was released last Friday showed a surprisingly good market.

Speaking at the Economic Club of Washington this week, Powell said:

“We didn’t expect it to be this strong. … [It] shows why we think this will be a process that takes quite a bit of time.”

While many economists don’t think that the Fed is going to start cutting interest rates in the foreseeable future, Powell has intimated that the work the Fed has been doing over the last year is starting to accomplish what they were hoping it would.

While U.S. stocks went up at one point on Tuesday following Powell’s remarks, they went all over the place for the rest of the day. Many investment analysts believe this type of market volatility is going to be around for a little while at least.

For instance, the BMO Family Office’s chief investment officer, Carol Schleif, said:

“Until we see softening and inflation throughout the economy and throughout the globe, it’s going to be hard to push the markets up in a decisive fashion.”

That being said, Morgan Stanley added 25 basis points to the forecast it had already issued for the Fed’s policy meeting to be held in May. The investment firm stuck to its original prediction that the Fed will institute its first 25 basis point interest rate cut in December of this year.

At its most recent meeting last week, the Federal Reserve Bank increased the benchmark interest rate 25 basis points. While that marked yet another meeting where the Fed increased the rate, it was one-third of the increase that the central bank had instituted at recent meetings.

While the major stock indices in the U.S. all benefited in the short term by the Fed’s decision to only increase the rates by 25 basis points – and Powell’s comments about the path ahead – they’re all also in the black for 2023 thus far.

The Nasdaq is the index that has performed the best year-to-date, with a 15% increase in its value.