--Declaring war on inflation, which all started with Powell's nomination.
Powell's performance is over, and he has taught the global market another lesson.
At his Fed chairman's hearing last night, Powell revealed all the signals he could, but the financial markets are moving in the opposite direction of logic.
Let's take a look at several major points from Powell's hearing:
We will use our tools to support the economy and a strong labour market and to prevent rising inflation from entrenched, Bauer said in his opening speech at the hearing.
1. End QE; in March;
2. If necessary, it will raise interest rates many times;
3. The Fed's dual mission of ensuring price stability and achieving full employment may change its focus. At present, it is more concerned about inflation (formally declaring war on "inflation");
4.Shrink balance sheet will be earlier and faster.
Note: The chairman of the Federal Reserve usually tries to avoid providing monetary policy guidance to the outside world before the interest rate meeting, but last night was an exception. The next monetary policy meeting is on January 27th.
These four sentences, whether viewed horizontally or sideways, are undoubtedly hawks. Traders' bets also confirm this point. Eurodollar futures pricing currently predicts that the Federal Reserve will raise interest rates four times this year (compared with three times a day ago).
Eurodollar futures pricing currently predicts four 25 basis point rate hikes this year.
But the trend of the global market has surprised countless investors:
The three major US stock indexes rose across the board, and the Nasdaq index even rose by more than 1%;
International oil prices rose by 3%;
Gold rose more than 1%, refreshing the high since January 5;
Bitcoin broke through $43,000;
The US dollar index fell;
The yield of US bonds declined, and the yield of 10-year US bonds fell to 1.746%.
When Chinese investors wake up, if they don't watch the news and open the trading software first (just look at the market trend), they think Powell said "there will be no interest rate hike, it will always be relaxed", instead of "there will be more interest rate hikes, and the table will be reduced faster and earlier than before".
What went wrong?
I tell you, this is an unprecedented time, and everything you learned in the past is outdated. The market will not simply rise because of good news and fall because of bad news.
Here's the truth:
From last week to this week, Powell's speech was preceded by a series of speeches by Fed officials.
Last Wednesday:
Minneapolis Fed Chairman Kashkari (the most dovish Fed official) wrote that he supported raising interest rates twice this year to deal with the risks brought by inflation, which is higher and more lasting than I expected.
St. Louis Fed Chairman Brad said (the most hawkish Fed official) that the Fed may start raising interest rates as early as March, and then shrink its balance sheet as the next step to curb inflation.
Daley, chairman of the San Francisco Federal Reserve, said that he tends to raise interest rates gradually and shrink his balance sheet earlier than the previous cycle.
This week's Wednesday:
Atlanta Fed Chairman Bostic said that it may be necessary to start raising interest rates as early as March, and start shrinking the balance sheet quite soon after the first interest rate hike to curb the soaring inflation.
Cleveland Fed Chairman Meister said that it may be necessary to raise interest rates at least three times this year and start to reduce its balance sheet.
George, chairman of the Kansas City Fed, urged an early reduction in the balance sheet, saying monetary policy was not in line with the economic outlook.
From the speeches of these officials, we can feel the hawkish remarks.
The secret of the market trend is hidden in the comparison between the speeches of these Fed officials and Powell's speeches-
1. Most Fed officials publicly called for raising interest rates in March. VS Powell did not disclose the specific time for the first interest rate hike (still secretive);
2. Powell did not make any unexpected comments on tightening monetary policy.
Powell's speech was more cautious than that of his colleagues, and Wall Street interpreted it as "relatively dovish", so there is a scene we saw: the US stock market rose.
This is the level. As chairman of the Federal Reserve from Wall Street, he knows the market too well.
For Powell, this timeThe purpose of the hearing is to gain more support and start a new term. Now it seems that by playing the "inflation card", he won (won the stock market and won more support), and he didn't leave inflation from the first words he said last night. At the hearing, members of both parties showed their support for him (he was confirmed with 84 votes for and 13 votes against four years ago), and Powell is expected to be nominated for confirmation. As the mid-term elections in the United States approach, rising prices are an anxious topic for lawmakers.
The sudden reversal of Fed policy began from the moment Powell was nominated for a second term. The once sensational forecast that the Federal Reserve would raise interest rates is now outdated.
Here are two of Wall Street's current consensus on Fed policy (aggressive Fed interest rate hike bets are reaching a frenzy):
First: Raise interest rates four times, in March, June, September and December respectively;
Second: Shrink the table in the third quarter, that is, after raising interest rates twice in March and June.
In fact, "raising interest rates and shrinking the table" in such a hurry also confirms that the current Fed policy is totally wrong.
The only question left is "will the financial market have a soft landing"?
Wall Street is bracing for a major shift that will have many effects on asset prices. Such a big move would not have been possible without alarming financial markets, especially shrinking the balance sheet by as much as $8.8 trillion. The real question will be whether the Fed has the ability to land financial markets smoothly without causing a huge economic shock. If the Fed is lucky enough to slow inflation, the market will achieve a soft landing.
It remains to be seen what tricks Powell has.
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