Stocks fall, bond yields turn
Today would have been the first eight day rally in the S&P 500 since March/April 2019 so maybe these moves are more about positioning than Powell.
The Fed chair largely stuck to his transitory view but between the lines he showed much more openness to the idea that inflation could be higher. He said they had to be ready for anything. That strident, confident tone that he had at Jackson Hole is gone.
“We need to make sure our policy is positioned for a range of outcomes,” he said.
I don’t think this is a big departure but Daly today also acknowledged a longer timeline on inflation in a turn for one of the biggest doves at the Fed.
The dollar move has been pronounced with US stocks giving up gains and the S&P 500 now down 21 points. Commodity currencies have been hit particularly hard. USD/CAD is brushing up against yesterday’s high:
What might be even more interesting is the bond market, where long-end yields are now down on the day. US 10s are down 3 bps to 1.6448.
The implication here is that a hiking cycle starting mid-2022 might prove to be a policy mistake and snuff out inflation, re-establishing sub-2% price growth for another decade.
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