For investors, what Federal Reserve chair Jay Powell says during press conferences following interest rate decisions is more important than the official statement accompanying each rate decision.

In other words, monetary policy is set by the communication of rate decisions rather than the decisions themselves.

This distinction was more pronounced than usual at the 20 March meeting which, for the record, saw the central bank leave benchmark federal funds rate unchanged in the range of 5.35% to 5.5%.

Powell’s comments on interest rates, inflation and the Fed’s balance sheet were interpreted as dovish when compared with the Fed’s official statement and updated summary of economic projections which were decidedly hawkish.

Investors took on the board the message and promptly chased the S&P 500 to yet another new all-time high which it has done no fewer than 20 times so far in 2024. In other words, markets are doing the Fed’s work.

Notably, the move higher in shares was also accompanied by a record high in the price of gold which breached $2,200 per troy ounce for the first time.

While there are other factors at play, such as central banks accumulating the yellow metal at a record pace over the last two years, the high price may also reflect worries over stickier medium-term inflation.

Investors appear to be taking the view the Fed will let inflation run higher for longer while maintaining its official line of bringing it back to its 2% target.

On inflation for example, despite recent evidence of core inflation coming in hotter than expected, Powell suggested this could be due to ‘seasonal’ factors, implying the solid progress made at the back end of 2023 was likely to reappear.

There also seems to be a shift in emphasis towards protecting the labour market.

On the surface the US labour market appears healthy with 275,000 new jobs created in February, but broader measures are showing signs of weakness which Powell acknowledges.

For example, the NFIB (National Federation of Independent Businesses) hiring survey shows a decline in hiring intentions in recent months.

So far, the Fed has done a good job of balancing the needs of the economy with reducing inflation. By its own admission the central bank is not sure how restrictive its policy stance is or how long it will take to bring inflation down to target.

Investors are looking past the conundrum and following the old maxim of ‘don’t fight the Fed’. This is reflected in all-time highs for riskier assets such as stocks and Bitcoin, tight bond yield spreads and a resurgence of initial public offerings.

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