John Authers What a day.
The Fed chair made no new commitments, but his message was loud and clear enough to drive a massive reversal.
Powell is admitting that the Fed doesn’t know how quickly it can get inflation under control (it’s not alone in this), and is maintaining maximum discretion for the months ahead. He declined invitations to rule out hiking at every meeting, or raising by more than 25 basis points at a time.
Here is what happened to the S&P 500 and the 10-year Treasury yield, minute-by-minute through the day. The red line marks the FOMC’s announcement at 2 p.m.
The bond market still thinks that the Fed will beat inflation without breaking anything.
The strength of the reaction to Powell’s press conference was driven in large part by the prior speculation that the market selloff would force him into offering a “dovish olive branch” and walk back some hawkish speculation.
That he deliberately and conspicuously refused to rule out any of the options that worry the market showed that the “strike price” of the Fed’s “put option” under the stock market (in other words, the index level at which the Fed would feel compelled to ease up) is lower than traders had thought.
John Authers Bloomberg 27 January 2022
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