Jay Powell addressed the country at 11:30AM PST. Issues we were waiting for answers on were a definite on the first rate raise in March, and whether they would push it .25% or .5%. He skated around answering that with any certainty. It was inferred that there would be 5 rate hikes this year now. If you recall it was 3 originally pushed to 4 on Mr. Powell’s last TV appearance. Now we are at 5 so if he holds to .25% per raise we are at least going to go up 1.25% in the cost of funds this year. We were also waiting to see what he said about selling off assets to reduce the Fed balance sheet. He did state that it would not occur until after the first rate hike, which didn’t help the market or mortgage rates.

Stocks were mostly green when Powell started but as he spoke everything went down and most went into the red. The 10-Year Treasury popped close to 1.85% and it was in the mid to high 1.7s prior. He tried his best not to make any specific claims, saying it was not possible to predict the path of the Fed’s policy. Following his statements ILML re-ran mortgage pricing and rates were slightly up across the board on all but the 15 year conventional and VA. He stated that the labor market is consistent with max employment so there is quite a bit of room to raise rates without dampening employment. Stated that other forces this year should also bring down inflation. All three indexes went red as Powell spoke.

Powell stated that the labor market has made remarkable progress, but inflation remains well above their long run goals. Supply issues larger, longer lasting than they thought. Inflation is now spread more broadly. He stated the Fed needs to be nimble.

Wouldn’t commit to anything except that the Fed would make a decision whether to raise rates at the March meeting. Stated that wages are rising at the fastest rate in years and that Omicron would surely weigh on growth this quarter. He said the Fed is not looking at any one market and would change the balance sheet plan as needed. He wants it to be orderly and predictable. Balance sheet will be discussed at the next two meetings and stated we are in a very very tight labor market. We are over 7% today and Powell stated that the Fed wants inflation expectations anchored at 2%.