Stocks and bonds plummet, while the dollar strengthens as Powell dismisses any chances of an early rate cut.

During a conference hosted by the International Monetary Fund, Federal Reserve Chair Jerome Powell acknowledged that although there has been some improvement in inflation, it is still higher than the Federal Reserve’s target. Powell emphasized the need for ongoing efforts to bring inflation back to the desired level, stating that there is still a long way to go to reach the 2% target. The conference provided Powell with an opportunity to discuss the state of the U.S. economy, following the recent decision by the Fed to maintain interest rates at 5.25%-5.5%. Powell noted an improved supply-demand balance in the labor market, but he anticipates a moderation in GDP growth in the upcoming quarters as the economy adjusts to new conditions. During the conference, climate activists interrupted Powell’s speech, leading to a colorful off-air statement from him. Despite the interruption, Powell reiterated that the Fed is not yet confident in achieving a sufficiently restrictive monetary stance and expressed concern about unexpected fluctuations in inflation. He also questioned the conventional wisdom that monetary policy should always overlook supply shocks and cautioned against ignoring their restrictive impact on the economic outlook. Powell concluded by expressing uncertainty about whether the structural factors that have led to lower interest rates will persist in the future. Market participants perceived Powell’s remarks as hawkish, leading to changes in expectations for the first Federal Reserve rate cut, as well as movements in the dollar, S&P 500 Index, Treasury yields, and bond ETFs.