Today we heard from the FED after their meeting, and the language was still vague and I thought unconvincing. In his press conference that followed the Fed decision, Powell said The Fed’s monetary policy actions have been guided by their mandate to promote maximum employment and stable prices for the American people. There was “quite a bit of room to raise rates without hurting jobs,” stoking expectations that the Fed’s plan to tighten monetary policy measures, which have underpinned risk assets, may be more aggressive than expected.
He said we understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Federal Reserve will do everything we can to achieve our maximum employment and price stability goals.
They are still buying more bonds, so increasing their balance sheet, and did not change their interest rate target. As a result, the S&P 500 closed lower Wednesday, as tech gave up some gains on surging U.S bond yields after Federal Reserve Chairman Jerome Powell hinted that there was plenty of runway to raise rates, with the first hike widely expected in March.
“Powell during the question session here is creating a bit of uncertainty, and I think that’s why the market is reacting this way. He’s talking about inflation might worsen, bottlenecks might get worse. What he’s trying to do is prepare the market for a worsening situation and also trying to balance the fear factor. But it seems the responses are creating an atmosphere of uncertainty, which is a negative for the market”.
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– I knew the FED wouldn’t raise interest rates. Because of the development of the 3 month T-bill rate. That rate rose from (about) 0.03% (about a month ago) up to 0.17% today/yesterday. If that rate comes close to or rises above 0.25% then and only then I expect the FED to raise rates.
– The notion that inflation drives interest rates is ludicrous. Just see what happened in the US between the years 1999 and mid 2008. In that timeframe oil prices went up from (about) $ 20 to over $ 140. If inflation drives interest rates then we should have risen but instead rates FELL !!!! The US 10 year yield fell from about 6.5% in the year 2000 down to say 4.5% in mid 2008 when oil peaked at over $ 140.