Rich Flannery.(Rich Flannery/Courtesy Photo)
The most influential person in the financial markets
There was a commercial from the 1980’s for a stock brokerage firm, the commercial was set up with a representative from the brokerage firm who was about to comment on something about investing in the stock market, and everyone stopped to listen. The commercial ended with “When EF Hutton speaks, people listen”. From economists to billionaires, the financial markets are teeming with influential people. But who is the most influential person that everyone pauses to listen to when they speak? This week that powerful figure was Federal Reserve Chair Jerome Powell. The Fed chairman addressed Congress at his semi-annual hearing, and markets listened intently. The Fed’s decisions have a major impact on market stability around the world. As the Federal Reserve aggressively hikes interest rates to bring down inflation, investors are looking for insights into what other action this influential figure might entail. The Fed chair said the Fed needs to keep overnight rates high for longer and may need to be more aggressive. This announcement led to more volatility in the financial markets. This is because rising interest rates can slow the economic engine and weaken confidence in market prices. If the impact of their higher rates is felt in the economy, it can impact corporate profits. However, where it is felt more is small business owners and the middle class. The Fed is trying to bring inflation down, but higher prices and higher interest rates will sting until inflation falls and consumer and corporate spending slows.
The Fed chair influences not only the US markets, but due to the large scale of the Fed’s decisions and the global impact; He is arguably the most influential person in the financial markets. Traders, investors, and economists alike, who hang on to every word he speaks, carefully monitor what he says. Sentiment and guidance from a single statement can move prices either up or down.
Much of the inflation we see today takes place at the grocery store and at the gas pump. The Fed chairman has no direct influence on these things. This becomes a supply problem. Inflation skyrocketed as more money chased fewer goods. This dynamic needs to be reversed. The Fed is reducing the money supply, but there needs to be more goods to choose from to bring prices back into balance. Fewer dollars chase more goods.
As last year’s Fed rate hikes move through the economic system over the next few months, we’ll see if the saying about keeping rates high longer is true.
This week, Fed Chairman Powell was the most influential man in the room when he was in Washington DC, and when he spoke, financial markets stopped to listen.
Rich Flanery is a Certified Mortgage Planning Specialist and Financial Planner, NMLS#256117, with Peak Capital Mortgage, LLC, 600 S. Saint Vrain Ln., #4, Estes Park, CO 80517. [email protected] 970-556-9250 .
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