A day after Powell’s assurances about the economy, markets are worried that ‘the Fed breaks something’

Federal Reserve Board Chairman Jerome Powell speaks to reporters after the Federal Reserve raised its target interest rate by three-quarters of a percentage point to stem a disruptive surge in inflation, during a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, U.S., June 15, 2022.

Someone in Powell's position would be expected to say that the central bank is not trying to cause a recession and that the economy is doing well.

The Fed is likely to get a recession even though the economy is not stable.

Markets were volatile on Thursday, going from a positive reaction on Wednesday to Powell's post-meeting comments to a plunge as investors worried about what effect higher interest rates and tighter monetary policy would have on a fragile state of affairs.

Quincy said that the market was worried about a policy mistake by the Fed. His comment that the economy is strong is being questioned by the market.

The Fed chair said at the news conference that the Fed isn't trying to cause a recession. We should be clear about that. There is no sign of a broader economic downturn.

There are many signs that the economy is slowing down.

Real estate data for May showed a 14.4% monthly decline in housing starts at a time when there is a chronic shortage of homes. The Philadelphia region continued to contract in manufacturing. The weekly unemployment claims were higher than anticipated.

Inflation is at a 41-year high, consumer confidence is at a historic low, and retail spending is falling.

Growth was going to slow even before the Fed started pressing on the brakes. There is growing evidence on that. It is not in line with the data on the ground.

In the aftermath of Wednesday's decision to raise benchmark interest rates 75 basis points, Wall Street reaction to the hike coalesced around a few common themes.

The market thinks the Fed will expunge inflation pressures.

The problem is now. She said that there was a feeling in the market that he could lead us to the Fed breaking something.

There wasn't a lot of clarity about what was to come. Will the Fed hike in July? Powell's statements indicated that both are on the table, but his comments about the economy left more wiggle room than markets were used to.

The chair changed his mind many times.

He said that the Fed doesn't have much control over inflation, but will keep hiking until gas prices fall. He conceded that the policy pivot away from a half percentage point hike to Wednesday's move was influenced by a rising inflation outlook and that inflation expectations are well-anchored.

The economic question was posed by the chair, who insisted that the economy is well positioned to handle higher rates while an Atlanta Fed gauge shows flat economic growth in the second quarter.

The comments Powell made came across as confused, lacking confidence, and raising macroeconomic and financial stability risks.

Powell was criticized by the firm for emphasizing food and fuel inflation, which is outside the Fed's jurisdiction.

"Not only is the Fed targeting the wrong variable explicitly and casting aside forward guidance, they also appear to be far too optimistic about near-term growth."

Powell said that policymakers won't be locked into a particular course of action but will be guided by data.

If he focuses on inflation influences like gas and groceries, he may not like what he sees for a while.

A 9% annual increase for the rest of the summer will put the Fed in a potential box if it uses those levels as policy-triggers.

An off ramp is needed. The reality is that they can't control it. There needs to be a better narrative. Short of him laying out a more cohesive strategy for how they're going to deal with this, this suggests that they might make a more meaningful policy mistake.