Powel: The Fed no longer plans to lower interest rates - The S&P 500 loses $500 billion!

The S&P 500 lost $500 billion in market capitalization yesterday after Jerome Powell stated that an interest rate cut in March is unlikely. This contrasts sharply with the speech in December, where the Fed seemed optimistic about possible rate cuts in 2024. While cuts may still occur later this year, this sudden shift in position from the Fed has shocked investors and triggered a massive sell-off of stocks.

S&P 500 Stock Market Reaction

The stock market reacted quickly and negatively to Jerome Powell’s unexpected comments. Within only 5 minutes after the start of the press conference, the S&P 500 index plunged more than 70 points, dropping below the 4000 mark. 

This sudden drop erased nearly $500 billion from the total market capitalization, a massive amount. Many tech and growth stocks, which are very sensitive to interest rates, were among the hardest hit.

The scale of this sell-off reflects the surprise of investors at the apparent change in Fed’s stance. After a relatively accommodating speech in December, the market extensively expected the Fed to begin easing its monetary policy in 2024.

However, Jerome Powell cast a chill by stating that a rate cut next month is unlikely. Although possible cuts are still on the table for later this year, investors are clearly disappointed by this turnaround.

Uncertain Economic Outlook for the FED

Behind this stock market reaction lies a growing concern about economic prospects.

Inflation remains stubbornly high, at over 6% year-on-year. The Fed now seems less confident in its ability to rapidly bring inflation down to its 2% target, hence its reluctance to ease monetary policy.

Yet, a restrictive monetary policy increases the risks of recession in the United States. Rising interest rates weigh on growth, while inflation erodes household purchasing power. 

The Fed is thus walking a tightrope, trying to curb inflation without causing a serious economic slowdown. Its apparent lack of clear vision is worrying investors.

Jerome Powell’s comments signaling a shift in the Fed’s stance on rate cut outlooks have led to a sharp decline in stock markets, resulting in nearly $500 billion in market cap being wiped from the S&P 500 index. Uncertainty is growing about the central bank’s ability to curb inflation without excessively harming growth.