Powell's 3-Word Update Stokes Fear About Fed Rate Cut

The market has given up its gains from earlier on Wednesday even as the Fed delivered the widely expected 25 basis point rate cut.

The reason for the market reversal stems from the comment that Federal Reserve Chair Jerome Powell made as he concluded his prepared remarks: “a December rate cut is not a foregone conclusion, far from it.”

The addition of “far from it” was a new development and it speaks to the Fed continuing to be data dependent when it comes to its policy decisions. It also emphasizes that the Fed is balancing elevated inflation pressures with the softer jobs market and recent layoff headlines we’ve been reading about.

Our concern for that potential led us to lift our cash position earlier in the day, ahead of the Fed policy decision.

During the presser, Powell acknowledged the recent wave of layoffs from the likes of Amazon (AMZN) , Target (TGT) , Applied Materials (AMAT) and others, and shared that the Fed will be watching for the impact in jobless claims data. Given the timing of those announcements, odds are that we won’t be seeing that in the data for a bit.

At the same time, the Fed chair also touched on the bifurcated economy when it comes to the consumer and acknowledged that there are areas where inflation pressure could accelerate further. That includes the electricity bills and health insurance prices, which could have a greater impact on lower income consumers. No comments were made about the potential pause on SNAP benefits, but should that come to pass it would be another layer of pressure on consumer spending by lower-income shoppers.

On the topic of the current government shutdown and the impact on the flow of data, Powell shared that if it continues and the data we do get does not show a meaningful change in the economy, there is the potential for the Fed to pause after cutting 50 basis point in recent months and 150 basis points in 2024 and 2025. That ties back to his comment that a December rate cut is not a foregone conclusion but “far from it.”

What Does This Mean for Us?

Continuing to follow the data like we always do, and next week brings figures for job creation, inflation and larger economic activity for October. Given Powell’s comments, we’ll be digging deep and updating our thinking when it comes to what’s next for the Fed and monetary policy. Based on what we learn, we’ll adjust the Portfolio as needed.

And for those keeping track, as we move toward the market close for Wednesday, the CME FedWatch Tool’s expectation for a December rate cut has shifted to 65% for another cut, 32% for no cut. On Tuesday, those figures stood at 90.5% and 9.1%, respectively.

Next on the Docket

With the Fed policy decision and presser over, the next hurdles for the market will be quarterly results from Meta (META) , Alphabet (GOOGL) and Amazon after Wednesday's market close. For the Portfolio, we’ll also toss in earnings from ServiceNow (NOW) .

Given the time difference, President Trump's meeting with Chinese President Xi in South Korea will take place at 10:00 p.m. ET on Wednesday.

How the stock market could open on Thursday will be strongly influenced by the outcome of those aggregate events. What that means is we will have an earlier than usual start, and probably more coffee than usual.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long AMZN, META, GOOGL and NOW.