Powell Quick Analysis: Markets set to suffer for two more weeks as Fed mostly dismissed bond rout

  • Fed Chair Powell has been speaking as markets are jittery over prospects of stronger growth and higher rates.
  • By sticking to the script, the bank allows yields and the dollar to rise, stocks to suffer. 
  • The clock is now ticking toward the next storm in two week's time. 

The world's most powerful central banker has spelled out his last words before the blackout period – and markets have undoubtedly noticed. Jerome Powell, Chairman of the Federal Reserve, has come out as markets have been jittery amid prospects of stimulus and vaccine-driven growth and inflation. Higher yields have been sinking stocks – and more is in store 

Powell refrained from using his power and only said that recent bond jitters "caught my attention"– paraphrasing his colleague Lael Brainard. This subtle signal has failed to convince investors as that comment has been the only dovish one. Otherwise, Powell remains on the script.

The Fed Chair has added that rates remain appropriate, that the bank wants inflation to exceed 2%, and has reiterated that some ten million Americans are out of work. What about Yield Curve Control, Operation Twist or other measures to push long-term borrowing costs lower? Apparently not on the agenda. 

US ten-year bond yields have soared well above 1.50%, sending the dollar higher and stocks lower. 

How long will it last? At least until March 17 – not due to Saint Patrick's Day drinking – the next time the Fed meets. By then, Powell and his colleagues will assess market moves and decide if they need to change course. Will the bank increase its bond buys beyond the current $120 billion per month? Powell has said not now, but may change his mind by then  

For now, the Powell Put is far from being alive and kicking.

Here is the preview of the event:

Powell Preview: Three scenarios for the Fed to defuse the bond bonfire, market implications


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