Bait-and-Switch Powell Puts Lights Out on Half-Hour Market Party

Jerome Powell’s Federal Reserve did something Wednesday it hadn’t done for months: say something dovish. Investors had all of 30 minutes to celebrate.

Like a reproving parent, the Federal Reserve chairman quickly put the kibosh on any budding euphoria his comments about monitoring the lagged effect of interest rate policy might have provoked. Rates are still going up, he reiterated, probably more than people thought.

The result was a painful bait-and-switch for stock and bond bulls. After surging 1% in the half-hour after the Fed decision was released, the S&P 500 Index sank when Powell said it was “very premature” to think about the central bank’s historically aggressive tightening cycle taking a pause.

The benchmark finished down 2.5% for its worst Fed day performance since January 2021. It was also the first time since 2008 that the S&P dropped more than 1% on two consecutive Fed days, Bloomberg data show.

Yields on two-year Treasuries -- the tenor most-sensitive to the expected path of Fed policy -- initially dropped after the statement’s release, only to sharply reverse course and climb nearly 6 basis points as investors priced in a higher terminal rate.