Fed chair testifies: So much for Goldilocks

For a moment this morning–before the actual testimony by new Fed chair Jerome Powell had ended but after Wall Street had read his prepared remarks–stocks moved ahead on Wall Street’s favorite story, Goldilocks. Powell seemed to be saying that economic growth was strong and getting stronger,  but that it wasn’t so strong that it would force the Fed to act more quickly on raising interest rates. On that reading, the market moved up to 2788.87 on the Standard & Poor’s 500 at 10:23 a.m. New York time.

But then as the market actually heard Powell speak, it began to reassess how this story comes out. On further consideration, Powell seemed to be saying that while the Fed would move gradually to raise interest rates, projected  economic growth was strong enough so that the Fed was worried about a significant pick up in inflation. Four interest rates increases, the market decided, and not just two or even three, were definitely on the table for 2018.

And with that the markets began to slide lower. The S&P 500 finished down 1.27% for the day at 2744.28, 40 points lower than it had been at 10:23 a.m. The Dow Jones Industrial Average fell 1.16%.

And Treasuries, which had rallied in price yesterday and for the first part of today, slipped again with the yield on the 10-year Treasury climbing 3 basis points back to 2.90% after falling below that level on Monday.