The Great Wall Street Comeback: Powell Made Light - Music Continues - Walla! Business

2021-02-24T07:13:16.732Z

If there is concern in the market that raising interest rates and reducing the Fed's support will come sooner than expected, Fed Chairman Jerome Powell's remarks yesterday made it clear that music continues, even in a more June tone.

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The Great Wall Street Comeback: The Bright Powell - The Music Continues

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Continues to hold the market up.

Powell (Photo: Reuters)

The expectation of an early and rapid recovery of the economy translated into rising inflation expectations in recent weeks has highlighted US bonds as an interesting alternative to park money in - which has weighed on stock markets, raising the question of whether air is starting to bubble, but Powell provided the goods yesterday. Of the American economy is far from good at changing policy.

William McChessney Martin, who served as chairman of the Fed from 1970-1951, said the role of the central bank is to "take the punch bowl just as the party begins to heat up," that is, do its job. And moderating the factors may lead to a hangover, or in other words raise interest rates just as the economy peaks after post-recession activity.

Thus, if the market increased concern that raising interest rates and reducing the Fed's support will - though not soon, but sooner than expected - then the Fed chairman's remarks Jerome Powell yesterday made it clear that music goes on and does not intend to move the bowl of punch off the table at this point.

Powell Holds the mantra that the rise in inflation is due to underlying factors, and since there are disinflationary pressures in the long run, there is nothing to be excited about this rise in bond yields, which market economists are expected to moderate.

If inflation does not moderate towards 2022 and the Fed does not change its tone, it may affect markets.

"The Fed's semi-annual testimony of Jerome Powell was highly ionic," said Gil Befman, chief economist at Bank Leumi. "It concludes that" the economy is far from our employment and inflation targets, and it will likely take time for significant progress to be made. " Is a clear indication that even with a massive budget package, the Fed will not slow the pace of asset purchases until next year.

“In the past year, U.S. monetary policy has undergone a revolution with the adoption of an average-flexible inflation target and the widespread implementation of intervention tools in markets and means of providing credit that were not there before.

Powell expresses determination in his desire to achieve a "broad and comprehensive" recovery in the labor market.

As Powell noted, "the high level of unemployment was particularly severe for lower-wage workers and African-Americans, Hispanics and other minority groups," Befman added.

Powell stressed "the Fed will not reduce its expansionary monetary policy in response to a strong labor market."

Befman said that "it seems that this means that the Fed will not make any move as long as the unemployment rate does not return to 4% and below, which is in line with the current estimate of the long-term unemployment rate. Emphasis is expected on minorities and low-wage workers. It seems that the Fed would prefer to define any increase in inflation as a result of "temporary" factors, at least until proven otherwise, in order to avoid a policy reaction to the expected increase in inflation this year. It seems that this June affidavit may lead to a recession. Rising US bond yields recently recorded.

Under these conditions the stock market will continue to be upward

According to Ronen Menachem, chief economist of Mizrahi Tefahot Bank, "When Powell said that the road to a recovery in the labor market and a rise in inflation to desired levels was still long", it seemed to contradict all recent reports of rapid vaccinations, declining morbidity and a near opening of the economy. A bucket of cold water spilled, even though the things themselves were not surprising and the Fed repeats it at every opportunity.

"And yet, against the background of optimism in the markets, these are things that confuse the market and lower its confidence.

But, at the same time, Powell says that interest rates will remain low for a long time to come and even if inflation rises, say, to 3% (1% above the target level) he will not press the brakes and start raising interest rates.

I also estimate that the bond purchases made by the Fed will continue at the current rate and also increase if it detects a "too rapid" increase in yields. This is because such an increase would take away "control" of the bond market and make interest rates irrelevant.

The stock market understands this, "Menachem continued." I would not be surprised if in such a case the Fed would do a "Japanese act" and set a target level for the yield on Treasury for 10 years.

"In any case, the fears in the market are understandable that the Fed and other central banks will have to walk on thin ice: continue the inflows and contain the rising inflation that will accompany the opening of the economy. Under conditions of sustained zero interest rates and a penetrating Fed to keep interest rates low. Upwards, "Menachem concluded.

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Source: walla

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The Great Wall Street Comeback: Powell Made Light - Music Continues - Walla! Business

The Great Wall Street Comeback: The Bright Powell - The Music Continues

Israeli development

Free demo: The platform straightens out from the first step

Under these conditions the stock market will continue to be upward

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