What Market Didn’t Like About Powell: Scant Tools, Short Answers

(Bloomberg) -- If for no other reason than he paused a seven-day plunge that erased $6 trillion, Jerome Powell deserves the thanks of stock bulls. The S&P 500 is up about 6% from when he first mulled rate cuts on Friday, and anyone who lived through last week is glad for the respite.

Going by the reaction today, however, it’s clear there is anxiety mixed with the gratitude.

Even as the Federal Reserve chief delivered additional stimulus, he acknowledged that this easing is insufficient to solve the myriad economic and health risks posed by the coronavirus. That’s self-evident, but a message neither businesses nor consumers were ever likely to take in stride.

Nor investors. The S&P 500 Index was up 0.5% before Fed Chair Jerome Powell’s press conference at 11 a.m. New York time. By the time he was done taking questions, stocks were down about 1.8% at session lows.

“He’s cutting and he essentially undercuts his own decision, by noting that the Fed’s tools are inadequate,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research. “It’s important to state the obvious in times of market panic when it’s helpful to you, but it’s also important to know when not to do that.”

Powell was asked about what changed between last week, when a litany of Fed speakers indicated a no cut was imminent, and today. He cited the broader spread of the virus, including to the U.S., and the risk to the outlook for the economy.

What he didn’t mention was the shift in financial conditions from the stock market’s last all-time high on Feb. 19 to last Friday, a move akin to nearly 50 basis points of tightening. While he brought up “significant movement in financial markets,” hard-to-console equity investors may have wanted more acknowledgment of their plight.

Powell kept his answers brief, saying nothing to suggest any unorthodox or more creative remedies are being weighed. He indicated the central bank didn’t discuss any tools besides rate cuts as part of the policy response right now. That also may be worrying the markets.

Senator Elizabeth Warren, for instance, called for the Fed to “offer low-cost loans to companies that agree to support their workers and that need a little help to make it through the next several months.”

“I thought there were three problems,” tweeted Dominic White, chief economist at Absolute Strategy Research in London. “1. He might as well have said ‘nah, there’s no coordination going on here.’ 2. The stuff about the economic effects. 3. He practically ruled out anything other than rate cuts.”

Of course, not all take such a downbeat view of Powell’s performance. Robin Brooks, chief economist at the Institute of International Finance, called it his best yet.

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“Very clear on many issues,” he wrote. “Are we seeing credit stress: not really. Is this coordinated G-7 action: we’re acting on our own, but more coordinated action may come. Honest about huge degree of uncertainty, which of course itself validates the cut.”