4 Hikes and 3 Cuts in Jerome Powell’s Era as Wall Street Keeps on Breaking Records

The bull market in Wall Street came to a stop in March 2020 after more than a decade run since the 2008 financial crisis, but that did not stop several record highs of Dow Jones Industrial Average during the four-year term of the U.S. Federal Reserve Chairman Jerome Powell.

 

Powell’s first term as the Fed’s chairman will come to an end in February 2022 and soon-to-be renewal for another term after the U.S. President Joe Biden nominated Jerome Powell to maintain his position as chairman of the Federal Reserve until 2026. The President also nominated Lael Brainard to the position of vice chair. Both are seen as monetary policy doves by market participants.

The Fed has been quite relaxed on the rate hike saying that the asset tapering is not an indicator for a rise in monetary policy amid spiking inflation rate from tight supply chain during the Covid-19 pandemic.

The market has priced in a full rate hike in June, which was a month faster than previously estimated, and then another hike in November 2022, seeing a tighter policy under Powell than Brainard. 

 

Still, the capital market flourished during nearly four years under Powell’s first term. Throughout his year, Dow Jones made numerous record highs. In 2018, Dow Jones achieved two 1,000-point milestones, but they were in January which was before Powell took the position. The market went into a correction after the peak in January at 26,439 points amid trade war with China, interest rate hikes and uncertainty in government policy. The central bank made a total of four rate hikes in 2018 from 1.50% to 2.50%, each time by 25bps. In 2018, the gross domestic production (GDP) was 2.9%, unemployment was 3.9% and inflation was 2.4%.

In 2019, Dow Jones set 22 record closes with two big milestones, soaring from 23,000 level to 27,000 level in July and 28,000 level in November amid hopes for trade negotiation with China as the Trump administration announced  that it would avert additional tariffs on import goods from China. There were three rate cuts in 2019 from 2.50% to 1.75%, each by 25bps, due to concerns of slower growth and to shield the economy from trade disputes. In 2019, the GDP was 2.3%, unemployment was 3.5% and inflation was 1.9%.

The Dow was seen at 23,000 level once again in March 2020 amid surging Covid-19 pandemic that had yet to be any cure or vaccine for this deadly virus at the time and the U.S. became the world’s most contagious in both infection and death categories. However, a sharp rate cut by 25bps in March and 100bps to 0.25% in the following month kept the capital market from falling further. Meanwhile, the hopes of a vaccine rollout in December also helped rally the market. Dow Jones finished the year above the 30,000 level. In 2020, the GDP decreased 3.4%, unemployment was 6.7% and inflation was 1.2%.

An interest rate near zero was kept ever since until the current day in 2021 but with speculation of at least two hikes in 2022 amid rising inflation rates. Dow Jones continued for more record breaking. The most recent one was 36,432 points in early November. Real (GDP of the U.S. increased at an annual rate of 2% in the third quarter of 2021. The unemployment rate was 4.6% in October while inflation spiked to more than three decade high at 6.2%.

 

Former U.S. President Donald Trump made several criticisms of Jerome Powell over his role as the Fed’s chair to the point that Trump even said he had the right to remove Powell from the position. Apparently, Powell made it through to the Biden era where the new president had made a rare occasion of nominating the same Fed’s chair as the previous government. Joe Biden praised Powell and Fed for its decisive action in the early days of the pandemic as the central bank rolled out lending programs, cut policy rates and initiated a monthly bond-buying program.

 

“Over the past few years, Chair Powell has provided strong leadership at the Federal Reserve to effectively meet and address unexpected economic and financial challenges, and I am pleased our economy will continue to benefit from his stewardship,” said Treasury Secretary and former Fed’s chair Janet Yellen.