Wednesday, December 8

Fed’s next aggressive turn after Powell’s election

Markets expect a more aggressive turn in the monetary policy of the USA after the re-election of Jerome Powell as president of the Fed and this was shown by the reaction of Wall Street.

Meanwhile he S&P 500 ended with falls of 0.3 percent, the Nasdaq corrected 1.3 percent. The fall in this selective is very revealing, as technology companies are particularly more sensitive to rising interest rates.

The re-election of Powell It came about when inflation reached 6.2 percent and is the big problem for the US economy. The president of the central bank himself made it clear that he will use all the tools to prevent prices from remaining at these levels.

Powell, a candidate with a more ‘hawk’ profile

The most abrupt reaction after the choice of Powell it occurred in bonds, whose prices fell sharply, which boosted returns. The other competing candidate, Lael Brainard, would have generated less tension.

In reality, “the difference between one and the other is small, they are the two dovish, prone to lower interest rates and more stimuli but Powell considers himself somewhat more hawkish,” he said. Miguel Angel Rodríguez, forex expert, on the market closing podcast for

For this reason, “we have seen a strengthening of the dollar, in addition to a rise in yields on ten-year bonds,” added this expert.

Expectations of increases in interest rates rise

As a result, Powell’s re-election “is accelerating expectations of interest rate hikes,” analysts said. Rent 4 Bank.

In fact, federal funds futures, which have a reverse movement to interest rates, have fallen and are already anticipating increases in the price of money above 0.5 percent.

The next meeting of the Fed will be on December 15 and it is most likely that there will be “a more restrictive turn in monetary policy, which will not be an increase in rates but an acceleration in the reduction of the purchase of assets,” he added. Rodriguez.

Brainard was the candidate of the Democrats, and in particular of the most left wing. His candidacy had won many integers on Wall Street.

In a way, investors interpreted that it was “much more favorable to bonds than Powell, in supporting more accommodative monetary policies,” he said. Juan José Fernández-Figarés, director of analysis at Link Securities.

Are there things Powell didn’t tell the markets?

Without having excessive differences between the two bankers, the truth is that the market began to prepare for the anticipated end of liquidity at zero cost. So much so that the probability of the Fed raising rates in June climbed to 77 percent, up from 67 percent previously.

But there is also the possibility that Powell hid some of his letters before reelection. “Are there things that he did not tell the markets while he was waiting for his appointment?” Thomas Costerg, economist of Pictet Wealth Management.

In the opinion of this expert, Powell he will speak now about what he really thinks about inflation, so he could offer a “a little more aggressive” message now that he is assured of re-election.

It is clear that the risk is an inflation that now does not seem as transitory as previously thought. And this more hawkish profile from Powell is what the bags are pricing in.

In fact, Rodriguez It does not rule out that the US central bank accelerates the reduction of the withdrawal of stimuli to 25,000 million dollars, compared to the current 15,000 million, already in the next meeting in December.

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