When Jerome Powell Speaks, Markets Shudder

Federal Reserve Board Chairman Jerome Powell delivers remarks at a news conference following a Federal Open Market Committee meeting on May 3, 2023 in Washington, DC. The Federal Reserve announced a 0.25 percentage point interest rate increase bringing the key federal funds rate to more than 5%, a 16-year high.

Anna Moneymaker / Getty Images

When Federal Reserve Chair Jerome Powell speaks, markets listen and move—even more so than they have to past Fed chairs.

The stock market’s late-afternoon slump in reaction to the Fed chief’s press conference on Wednesday exemplified a trend identified in an analysis by two Harvard researchers in February. Powell’s off-script words during press conferences about interest rate hikes frequently rock financial markets, usually pushing in the opposite direction as the Fed policy committee’s official statements, and causing much more volatility than previous Fed chairs Janet Yellen and Ben Bernanke. 

The research underscored the Fed chair’s outside influence over the prices of financial assets, and suggested that Powell’s newsmaking press conferences could undermine the Fed’s goal of being as predictable as possible. 

Traders often buy and sell based on the direction they guess the Fed’s key interest rate will move in the future. The official statements released by the Federal Open Market Committee announcing rate-setting decisions offer some insight into the Fed’s thinking.

The Fed chair’s press conferences immediately afterward—when he or she can speak off the cuff—can provide even more fuel for speculation.

Prices for stocks and bonds move up and down far more for Powell than they did for his two previous predecessors, and are more likely to reverse the impact of the more deliberate official statement, according to the working paper, published in February by Harvard economics graduate students Namrata Narain and Kunal Sangani. 

“Chair Powell has been more likely to elicit large market reactions, often in the opposite direction of initial reactions to the FOMC statement,” the researchers wrote. 

The researchers ruled out the explanation that the market itself is simply more volatile in the pandemic era than it was under Bernanke, who introduced the post-FOMC statement press conferences when he chaired the Fed from 2006 to 2014, and Yellen, whose tenure lasted until Powell took over in 2018. 

The increased impact of press conferences could hurt the Fed’s efforts to make its intentions clear to traders, Narain and Sangani wrote. The central bank attempts to communicate its thinking on policy as clearly as possible under the theory that the public’s beliefs about future inflation can be something of a self-fulfilling prophecy. 

“The FOMC statement no longer appears to be the ‘final word’ on the path of monetary policy to markets, and there has been weaker resolution of uncertainty about the path of future interest rates,” the researchers wrote. “On the other hand, as the U.S. economy faces its highest inflation rates and the steepest set of interest rate hikes in decades, perhaps extraordinary times call for such a shift."

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  1. Social Science Research Network. "The Market Impact of Fed Communications: The Role of the Press Conference."

  2. Federal Reserve. "Federal Reserve Issues FOMC Statement."

  3. Federal Reserve. "Transcript of Chair Powell’s Press Conference May 3, 2023."

  4. Federal Reserve. "Monetary Policy Report – February 2019."

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