Powell’s stance – A less vigilant inflationary pushback?

Markets

Stocks extended gains for a fourth consecutive session on Tuesday, with the S&P 500 touching the highest level Since January 2022 as Wall Street carefully examined another set of inflation data, seeking clues on when the Federal Reserve might initiate monetary policy easing.

Despite the mixed US CPI inflation print, perhaps at the heart of the matter is a keen set of investors who are encouraged by the disinflationary trend and may have found contentment in some of the details of Tuesday’s report, suggesting that the Federal Reserve’s preferred measure of inflation will remain subdued from here on out.

Hence, some anticipation may be getting baked into the S&P 500 rally extension of a less vigilant inflationary pushback from Chair Powell, but still pushing back against excessive market front-end rate cut pricing. The market would then intuitively return to the Waller Pivot narrative, where the Fed would then mechanically ease tangentially with the decline in inflation. Which in itself is not a bad outcome for stocks.

Oil prices

Oil prices experienced a significant decline of more than 3% on Tuesday. This drop followed the U.S. Consumer Price Index (CPI) report, which indicated that inflation remained persistent in November despite a widespread decrease in gasoline and energy prices. This development diminishes the outlook for the Federal Reserve to initiate interest rate cuts as aggressively as market pricing, which raises the odds of a Fed-induced recession.