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Markets rallied after Powell's speech, but don't expect a Fed pivot - Gary Wagner

Kitco News

(Kitco News) - Markets rallied after Federal Reserve Chairman Jerome Powell's speech on Wednesday, with the S&P 500 rising 3 percent, Bitcoin going up 2.7 percent, and gold jumping up by 1 percent. Powell said that the Fed would "moderate" the pace of rate hikes, language that market participants appear to inferred as dovish.

However, this should not be interpreted as a sign that Powell is pivoting, said Gary Wagner, Editor of

"[The Fed] will continue to have a very aggressive and tight monetary policy, but they will tone down the amount of each individual rate hike," he said. "There was no mention of a pivot… [Powell] never mentioned that it would be appropriate to ease their monetary policy."

Wagner claimed that markets acted with too much optimism following Powell's remarks, since the Fed Chairman is committed to fighting inflation.

"They heard what they wanted to hear, rather than the nuances in what [Powell] said," explained Wagner. "He never talked about a pivot, he never talked about monetary easing, so there is not going to be that kind of scenario."

Wagner spoke with David Lin, Anchor and Producer at Kitco News.

Labor Markets

The Bureau of Labor Statistics reported on Wednesday that U.S. job openings fell to 10.33 million in October, compared to 10.69 million in September. Unemployment has remained steady, and the quits rate has been steadily trending down since 2021.

Interpreting these data, Wagner forecasts that there will "continue to be a tight labor market throughout next year."

"The Fed wants wages to keep pace with inflation," he said. "That's the whole idea of having a maximum employment scenario, to have wages be enough to sustain those working-class citizens that need to pay their bills as goods and services costs have been rising."

In his speech on Wednesday, Powell blamed the pandemic on the reduction in the number of workers. Wagner suggested that broader retirement demographics also played a role.

"You were at the tail end of the workforce being compiled of a large percentage of Baby Boomers," he said. "That is where you're getting a lot of people gradually, but at a pretty consistent pace, leaving the workforce."

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Stock Market Rally?

Although the stock market rallied following Powell's speech, there has been a downward trend in equities throughout the year, with the S&P 500 falling 15 percent, and the NASDAQ falling 27 percent over the year.

Wagner said "it is too early" to tell whether stocks have reached a bottom.

"One thing we do know is that the cost of borrowing money for these corporations, to do mergers and expand, continues to be a lot greater than it was a couple of years ago," he said. "Now they're adjusting to interest rates that are more normalized, when we're looking at 3, 4, and 5 percent interest rates. The cost of borrowing is going to be the continuing factor as to whether or not companies can expand."

To find out Wagner's gold price forecast, watch the video above.

Follow David Lin on Twitter: @davidlin_TV

Follow Kitco News on Twitter: @KitcoNewsNOW

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