Stocks & Bonds Slide After ‘Fed Whisperer’ Confirms ‘Higher For Longer’ Rates

After Powell’s words sparked panic-buying – and dramatic easing of financial conditions – some are wondering if The Wall Street Journal’s Nick Timiraos’ report this morning is an attempt top jawbone back the market’s dovish perception.

Federal Reserve officials have signaled plans to raise their benchmark interest rate by 0.5 percentage point at their meeting next week, but elevated wage pressures could lead them to continue lifting it to higher levels than investors currently expect.

…

brisk wage growth or higher inflation in labor-intensive service sectors of the economy could lead more of them to support raising their benchmark rate next year above the 5% currently anticipated by investors.

Timiraos comments come right after the Fed’s pre-meeting ‘blackout’ began over the weekend.

Timiraos’ comments pushed terminal Fed rate expectations higher…

And sparked selling in bonds and stocks. Treasury yields are higher (but obviously not in the same range as Friday’s chaos)…

The S&P mechanically retraced all of Friday’s losses, tagged the stops and has sunk since with futures now testing back below the 2090-day moving-average…

Specifically, Timiraos confirms what most Fed speakers have been saying:

They want to guard against raising rates too little and allowing inflation to resurge, or raising them too much and causing unnecessary economic weakness, according to recent public comments and interviews.

…

Some officials could seek to push through another half-point rate rise in February because they see a greater risk that inflation won’t decline enough next year. Without signs of slower hiring, they could worry that inflation could pick up again.

So why is the market still pricing in earlier and more rate-cuts next year? And will the next Fed statement crush that hope once again?