I have never seen Fed Chair Jay Powell so cavalier as during yesterday’s Federal Open Market Committee (FOMC) press conference. If I had to borrow a movie title, it would be “Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb.”

But watching this major plot twist, this movie would be called ‘Dr. Nonplussed or: How I Learn to Stop Worrying and Love Higher for Longer.’

Not only was the Q & A session defensive, but the Fed Chair also seemed matter-of-fact regarding things like the strange changes in the Summary of Economic Projections (SEP) and current policy.

This exchange stood out to me:

Q:  Jeanna Smialek, The New York Times. Thanks for taking our questions.

In the Summary of Economic Projections, the long-run interest rate forecast moved up a bit. I wonder if we should read that as a sign to think that policy is not as restrictive as we previously expected. You know, how should we interpret what that means about how the committee views its current policy setting?

Mr. Powell:  But I think, for the reasons I talked about at the last press conference and other places, I think the evidence is pretty clear that policy is restrictive and is having, you know, the effects that we would hope for.

Confusing

The Fed updates its economic assumptions quarterly, so there was much anticipation about the Summary of Economic Projections (SEP) going into yesterday’s session.

The Fed now sees higher headline and Core Personal Consumption Expenditures (PCE) inflation for 2024 and 2025 than three months ago.

The Fed also sees higher unemployment in 2025 and 2026.

Against this backdrop, Powell & Co. reduces rate cut expectations to one from three this year and increases to four from three for next year.

That was an odd tradeoff.

Meanwhile, the FOMC moved the neutral rate to 4.2% from 4.1%.

The Fed’s Dot Plot for 2025 looks nuts but is irrelevant with so much riding on subsequent inflation readings.

Rate Cuts & Bond Reaction

Although the Fed only sees a single rate cut this year, the market now assumes a 61.5% chance of a rate cut in September, up from 52.6%.

During the session, the ten-year bond yield plunged as much as 12-basis points (bps) but began edging back up into the close.

Market Stuck to Script

Growth sectors were joined by Real Estate (XLRE) and Industries (XLI) on the S&P 500.

Initially, it looked like a gangbuster’s day for small-caps, but then Powell began to speak. The Russell 2000 and S&P 600 Small-Cap 600 Index popped at the start of trading, then gave up a lot of ground into the close.

Market Leadership

Oracle Corp. (ORCL) was able to pull off what Marc Benioff of Salesforce (CRM) could not – talk their way out of a poor quarter. (Hint: lay it on thick with Artificial Intelligence (AI)).

Today’s Session

It’s a wake me up before you go-go morning. The problem is outside of the Broadcom (AVGO) (financials beat and 10-1 stock split) and Tesla (TSLA) (giving that man his money), it could be an indecisive start to trading.

The argument for Fed rate cuts got help this morning.

Initial jobless claims climbed to 240,000, consensus was 225,000.

Producer prices edged lower by .02% from April to May (April was revised higher to 0.5%).

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