The adroit navigational skill of Federal Reserve Chair Jerome Powell reminds me of this dialogue from the 1989 movie Indiana Jones and the Last Crusade.

Professor Henry Jones: “I didn’t know you could fly a plane.”

Indiana Jones: “Fly, yes. Land, no.”

It’s increasingly clear that Fed Chair Powell can both fly and land the plane.

At the conclusion of its two-day meeting Wednesday, the central bank’s policy-making Federal Open Market Committee (FOMC) opted to leave the federal funds effective rate unchanged at 5.25% – 5.50%.

However, what boosted investor confidence were Powell’s calm and reassuring remarks at his post-announcement press conference.

As the nation’s chief economic navigator, Powell’s mission is clear: to execute a smooth descent for the economy, while avoiding a crash landing. He’s pulling it off.

Powell on Wednesday indicated that despite the FOMC’s cautionary stance, rate cuts are a distinct possibility in the near future.

“The broad sense of the committee is that the economy is moving closer to the point at which it would be appropriate to reduce our policy rate,” Powell said. “The question will be whether the totality of the data, the evolving outlook and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market. If that test is met, a reduction in our policy rate could be on the table or as soon as the next meeting in September.”

The FOMC’s decision to stand pat, coupled with Powell’s strong hints of impending rate reductions, cheered investors.

The main U.S. stock market indices closed sharply higher Wednesday as follows:

• DJIA: +0.24%
• S&P 500: +1.58%
• NASDAQ: +2.64%
• Russell 2000: +0.51%

The benchmark 30-year U.S. Treasury yield slipped 0.70% to settle at 4.36%. The CBOE Volatility Index (VIX), the so-called “fear gauge,” plunged nearly 8% to land at 16.28.

Even the Fed’s non-action on rates is a plus. When the Fed holds rates steady, it provides a stable financial environment. Companies can access capital at predictable rates, facilitating investment in growth initiatives, expansion projects, and innovation.

Stable rates also translate into consistent borrowing costs for consumers, supporting continued spending.

Holding rates steady also helps maintain higher equity valuations, as the discounted value of future earnings remains favorable.

The federal funds effective rate hovers at 5.33% (see chart).

Powell’s intimation of potential rate cuts later in the year adds another layer of optimism for equity investors.

The soft landing: a rare achievement…

The Fed’s current monetary approach suggests it’s on the verge of achieving a rare and highly desirable economic outcome: a “soft landing.” This term refers to the delicate balance of slowing down an overheated economy without tipping it into recession.

Achieving a soft landing is a challenging feat, but if successful, it offers significant benefits for the economy and Wall Street.

A soft landing means the economy continues to grow at a healthy pace without the disruptions of a recession. This stability is favorable for long-term investments and business planning.

By managing inflation without triggering a downturn, the Fed ensures purchasing power remains intact, supporting consumer confidence and spending.

A successfully managed soft landing enhances confidence among investors, encouraging capital inflows into equity markets and driving stock prices higher.

For Wall Street, the Fed’s cautious yet optimistic approach is a clear signal of confidence in the economy’s resilience. The potential for lower rates adds a layer of excitement, as it opens up opportunities for increased profitability and growth across sectors.

Moreover, the prospect of a soft landing mitigates fears of a harsh economic downturn, reducing market volatility and supporting sustained bullish sentiment.

The latest data indicate that the economy is growing but inflation is falling. Powell and his Fed compatriots have proven themselves a capable crew.

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