Federal Reserve Chair Jerome Powell tried to calm investor worries this week. He didn’t succeed. Wall Street interpreted the latest pronouncements of Powell and his cohorts as aggressively hawkish.

In the wake of the Fed’s latest policy pronouncements, the main U.S. stock market indices on Wednesday went on yet another wild roller-coaster ride, eventually closing as follows: the Dow Jones Industrial Average -129.61 (-0.38%); the S&P 500 -6.52 (-0.15%); and the Russell 2000 -27.57 (-1.38%). The NASDAQ managed to eke out a small gain of +2.82 (+0.02%).

In pre-market futures contracts Thursday, the U.S. indices were trading in the green. One reason some investors are keeping a cool head is the fact that bond yields aren’t soaring. In fact, as of this writing Thursday, the 10-year U.S. Treasury note was ticking downward. And so far, corporate earnings results for Q4 2021 are holding up.

Greater urgency over inflation…

The Federal Reserve concluded its two-day Federal Open Market Committee (FOMC) meeting Wednesday, announcing that the central bank would hold interest rates at near zero. At the same time, the policy-making FOMC underscored its commitment to tighten the money supply to contend with rapid inflation.

The FOMC said in its official statement: “With inflation well above 2% and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”

It was the FOMC’s first policy meeting of 2022. The FOMC also reiterated that it expects to wrap-up its asset “tapering” by March.

Markets responded positively and were in the green, until Powell spoke in the late afternoon and showed his uncanny knack for spooking investors.

At his press conference Wednesday, Fed Chair Powell observed:

“While the drivers of higher inflation have been predominantly connected to the dislocations caused by the pandemic, price increases have now spread to a broader range of goods and services…

With this in mind, we will remain attentive to risks, including the risk that high inflation is more persistent than expected, and are prepared to respond as appropriate to achieve our goals.”

Interpretation: the Fed is feeling much greater urgency about inflation and the rate hike cycle is likely to intensify.

On the split screen of my television in real time, on one half Powell was speaking. On the other half, stocks were tanking.

Growth projections get downgraded…

As we enter the third year of the pandemic, headwinds are gaining force.

The International Monetary Fund (IMF) has downgraded its growth forecast for the global economy by 0.5 percentage points. According to its latest World Economic Outlook, published on Tuesday, the IMF now expects worldwide gross domestic product to grow 4.4% this year, down from its October 2021 forecast of 4.9%.

As the IMF report puts it: “The global economy enters 2022 in a weaker position than previously expected.”

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As major culprits for its reduced growth outlook, the IMF cited the spread of the highly contagious Omicron variant of COVID, supply chain disruptions, labor shortages, and fast-rising inflation.

In the U.S., tightening monetary policy and political gridlock contributed to the IMF’s more pessimistic projection. In China, growth headwinds include China’s zero-tolerance COVID policy and mounting debt woes.

The IMF report also asserted:

“Risks to the global baseline are tilted to the downside. The emergence of new COVID-19 variants could prolong the pandemic and induce renewed economic disruptions. Moreover, supply chain disruptions, energy price volatility, and localized wage pressures mean uncertainty around inflation and policy paths is high.”

The following chart tells the downbeat story:

The IMF did offer a glimmer of hope on inflation: “Assuming inflation expectations stay well anchored, inflation should gradually decrease as supply-demand imbalances wane in 2022 and monetary policy in major economies responds.”

There are other reasons for optimism as well. Omicron appears to be peaking; China is actually loosening its monetary spigot; companies are stepping up share buybacks; and management guidance during Q4 earnings calls increasingly indicates pricing power combined with resilient consumer demand.

Also keep in mind, stocks have historically performed well amid rising inflation and expectations of Fed rate hikes. Don’t get frazzled by the recent bout of volatility; stick to your long-range strategy. And if Powell’s press conferences tend to dishearten you, just hit the mute button.

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John Persinos is the editorial director of Investing Daily.

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