Markets nosedive after Powell Fed action could bring "pain"

Dow plunged 1008 closing at session lows on a dreary day for stocks, decliners over advancers 6-1 & NAZ sank 497.  The MLP index fell 2+ to the 224s & the REIT index dropped a huge 10+ to the 425s on concerns about higher interest rates.  Junk bond funds fluctuated & Treasuries were sold, driving Treasury yields slightly higher.  Oil crawled higher in the 92s & gold dropped 22 to 1749 (more on both below).

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Federal Reserve Chair Jerome Powell delivered a stark message on the state of the US economy at the annual central bank gathering in Wyoming:  Inflation remains painfully high & cooling it will require forceful action that could soon bring "pain" to households & businesses nationwide.  In his anticipated speech, Powell reiterated a pledge to "forcefully" fight inflation that is still running near the hottest pace in 40 years & wrestle it closer to the Fed's 2% goal.  "While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses," he said.  "These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain."  Even with 4 consecutive interest rate hikes, including 2 back-to-back 75 basis point increases, Powell stressed that the Fed is not in a place to "stop or pause" – an unwelcome sign for investors who were predicting a rate cut next year.  The current benchmark federal funds at 2.25-2.50% is around the "neutral" level, meaning that it neither supports nor restricts economy activity.  But the Fed chief signaled that a restrictive stance will almost certainly be necessary as the central bank tries to pump the brakes on the economy.  "We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%," he said, suggesting that "restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy."  Powell's comments confirmed that the Fed remains determined to fight inflation & slow consumer demand, even if it means failing to achieve the elusive soft landing & triggering a recession.

Fed's Powell warns inflation fight could bring economic 'pain'

The Federal Reserve's preferred inflation gauge moderated slightly in Jul, but prices remained near a 4-decade high, according to new data.  The personal consumption expenditures index (PCE) showed that core prices, which strip out the more volatile measurements of food & energy, climbed just 0.1% from the previous month & rose 4.6% on an annual basis, according to the Commerce Dept.  Those figures are both lower than the 0.3% monthly increase & 4.7% annual increase forecast.  The more encompassing headline figure rose 6.3% on an annual basis after prices actually fell 0.1% from the previous month.  While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell told reporters last month that core data is actually a better indicator of inflation.  "Core inflation is a better predictor of inflation going forward," Powell said.  "Headline inflation tends to be volatile."  The latest report also showed that consumer spending rose just 0.1% last month, a marked slowdown from the 1.0% increase in Jun.

Fed's preferred inflation gauge eases in July but remains near 40-year high

Ukrainian Pres Volodymyr Zelenskyy says the world narrowly sidestepped a radiation disaster yesterday when Europe's largest nuclear power plant was disconnected from the country's power grid.  Zelenskyy warned that it was only due to backup electricity kicking in that the Russian-occupied Zaporizhzhia power plant was able to operate safely.  “Every minute the Russian troops stay at the nuclear power plant is a risk of a global radiation disaster,” Zelenskyy added.  He called on the intl community to help force Russian forces to immediately withdraw from the territory of the power plant.  Meanwhile, Russian Pres Vladimir Putin signed a decree ordering an increase in his country's armed forces by 137K.  That comes as the Kremlin's onslaught on Ukraine enters its 7th month. 

Zelenskyy says world narrowly avoided nuclear catastrophe; Putin to boost size of Russian military 

Gold prices fell, building on their loss for the week, as Federal Reserve Chair Jerome Powell emphasized the need to bring down inflation in a speech at the Jackson Hole central bankers conference, supporting prospects for higher interest rates.  In his speech, Powell delivered a blunt message that the Fed will keep working to bring inflation down until it is done & that the fight will cause pain to households & businesses.  Gold futures for Dec fell $21 (1.2%) to settle at $1749 per ounce.  For the week, the most-active contract ended 0.7% lower.  In Fri dealings, the yield on the 10-year Treasury climbed by 1 basis point to 3.0418%, while the the ICE US Dollar Index a gauge of the greenback's strength against a basket of rivals, was up 0.3%.  A stronger $ is a byproduct of rising rates & gold will suffer from that as well.  Powell kept the door open for a 0.75 percentage point interest rate hike in Sep, saying that "another unusually large increase could be appropriate" next month.

Gold ends down for the session and week as Powell remarks suggest aggressive tightening

Oil futures settled higher, contributing to a gain for the week.  Oil prices continue to look reasonably underpinned given this week's commentary from OPEC about the prospect of production cuts.  But with recession concerns rising, fears over demand destruction do appear to be increasing.  Remarks from Jerome Powell at the Jackson Hole retreat raised the likelihood of further interest-rate hikes, as the central bank moves to reduce inflation - which can lead to lower oil demand.  Oct WTI crude was up 54¢ (0.6%) to settle at $93.06 a barrel.  Front-month prices ended the week 2.9% higher

Oil futures finish higher for the session, up nearly 3% for the week

Powell shook up the markets today.  The fight with inflation will be a tough one & could require more rate hikes to slow the economy.  Investors did not take that message well.  Dow had been rising this week, but after today's selloff it was down 425 for the week   Another way to look at the fall is about ½ of the rally from mid Jun has been wiped out.  The stock market will start next week, the last week before Labor Day, with a major headwind.

Dow Jones Industrials