Fighting The Fed

Wall Street wants lower rates. Powell says not yet

- Cristina Lindblad

 

There was a time not too long ago when traders were betting the Federal Reserve would start cutting interest rates at its Feb. 1 policy meeting. This was in the summer, when one of those periodic bouts of euphoria was sweeping across markets because, the cognoscenti had determined, inflation would quickly subside and pave the way for the Fed to shift its focus to shoring up growth.

That didn’t pan out, of course. Instead, the central bank’s rate-setting committee nudged up the benchmark by a quarter point, the eighth straight increase since March but also the smallest.

Traders were forced to capitulate months ago and have pushed back their calls for a rate cut to July at the earliest. Yet much of that same inflationis-about-to-melt-away good vibe has taken hold of markets once again, sparking sharp rallies in the new year in stocks, corporate bonds, and cryptocurrencies. Even coins tied to disgraced mogul Sam Bankman-Fried are soaring.

For some observers, there’s a nagging sense that they’re watching a movie playing on a never-ending loop, as investors breathlessly push up asset prices in anticipation of a pivot in Fed policy, only to get crushed when Chair Jerome “Jay” Powell and his lieutenants remind them it’s too soon to proclaim that inflation has been vanquished. Last year was brutal for investors of all stripes, and those who bet big on ephemeral rebounds were in many cases burned worst of all.

“I’ve spent enough time around Wall Street to know that they are culturally, institutionally, optimistic,” Neel Kashkari, the president of the Minneapolis Fed and a former investment banker and trader, told the