How Fed Chair Powell’s tone could move markets

Jared Blikre, Yahoo Finance’s Jared Blikre, breaks down the different market scenarios depending on whether Fed Chair Powell adopts a hawkish tone or dovish tone at the FOMC press conference.

Video Transcript

AKIKO FUJITA Let’s now talk about markets. Jared Blikre will join us in the studio. Jared Blikre joins us in studio. Jay Powell could deliver a more hawkish tone this morning.

JARED BLIKRE That’s right. The bottom line is that there are only two options. You can either be hawkish, or dovish. Let’s see what happens if Powell takes a slightly more hawkish tone. The Fed might not be as quick to pivot, which means that rate hikes will likely go on for longer than expected.

Also, risk assets will likely be down–flat to down on a daily basis. This includes stocks, commodities, and crypto. It’s interesting to note that Powell and the big crypto hearing are the biggest stories of the day. Well, Bitcoin has been a leader both on the upside as well as the downside when we have had these various decisions.

On the other hand, if Powell strikes a dovish tone it would mean that the Fed is more likely to pivot. In other words, the Fed stops raising rates sooner than expected. This would also indicate that risk assets such as stocks, commodities and crypto would rally. Now we would probably get the fringe assets– I would suggest crypto and some of these beaten down growth centre stocks.

They would likely rise significantly faster than other cyclical or value sectors. The flip side is that those same crypto and growth technology assets would fall quicker than other cyclical and value sectors if we adopted a hawkish tone. It’s very simple: If the Fed is hawkish, then he’s likely to be slower to pivot. Conversely, if he’s more dovish, then he’ll pivot quicker.

AKIKO FUJITA Jared Blikre will be our market leader this morning.