Federal Reserve Chairman Jerome Powell had a chance March 1 to retreat from the hawkish rhetoric he displayed earlier in the week — and he took it, analysts said.
After his first testimony as Fed chair on Feb. 27, some in the market viewed there was a greater chance of four interest rate hikes from the U.S. central bank this year. He said at the House Financial Services Committee, for example, that his "personal outlook for the economy has strengthened" since December, when Fed officials had signaled three rate hikes may be coming. He also mentioned raised the possibility of an overheating U.S. economy sometime in the future.
Those comments drove down stocks as investors saw clearer indications of further tightening from the Fed.
So analysts watched as Powell was on Capitol Hill again on March 1, this time before the Senate Committee on Banking, Housing, and Urban Affairs. At that hearing, Powell said he saw "no evidence that the economy is currently overheating," and he said there may still be some slack in the labor market that the Fed could try to shake off.
Investors' fears over the past month have largely centered on the potential that inflation may be strengthening and could force the Fed to hike rates quicker. Those worries are partly driven by signs that wage growth may finally be picking up, but Powell said the Fed does not "see any strong evidence yet of a decisive move up in wages."
"He swung the Fed's stance on monetary policy away from predecessor Janet Yellen's on Tuesday but tried to swing it back on Thursday," wrote Ryan Sweet of Moody's Analytics.
Chris Low, chief economist at FTN Financial, wrote although Powell struck the same optimistic tone about the economy, he "also seemed a little more careful, likely aware he was blamed for Tuesday's stock market drop."
Stocks sank again March 1 after Powell spoke, though the drop may be attributable to an announcement from President Donald Trump that he was planning tariffs on steel and aluminum imports.
JJ Kinahan, chief market strategist at TD Ameritrade, said Powell highlighted the same positive economic outlook that has been clear for several months, but markets for some reason began viewing Fed tightening as "the scariest thing in the world."
Powell probably learned that every word he says will matter to the markets, Kinahan said. Wall Street, he added, will get used to his less-academic style over time and learn to how to gauge his comments.
"I actually think that many people like him in the markets because he talks like them," Kinahan said. "He doesn't talk like an economist. He talks like someone telling you a story. He talks much more like a CEO, I think, than an economist."
