[FOMC 그후] ② Wall Street, Powell’s’pigeon’ power also’bond warning’… Why?

Despite maintaining the “pigeonist” stance of the Federal Reserve System (Fed and Fed), Wall Street (Wall Street) still voiced concerns and remained nervous.

On the 17th (local time), members of the Federal Open Market Committee (FOMC) unanimously decided to’freeze the standard rate’ and signaled that there will be no rate hike until 2023.

However, Wall Street points out that there was no new content confirmed in a FOMC statement and a press conference by Fed Chair Jerome Powell. The financial market situation has not changed much from before the FOMC meeting.

Above all, concerns about inflation (increased inflation), one of the most unstable factors in the financial market, remain. The Fed argues that the inflation rate will soon settle beyond the recent surge. However, it is unclear whether prices will move according to the Fed’s order.

◆The Fed-Wall Street’s mixed gazes… bond market unrest’still’

Wall Street pointed out that although investors were relieved by the Fed’s announcement that day, there is still an unstable factor pressing the market. This is because there is a difference in perspective between the Fed and the market looking at the current situation, such as inflation.

Wall Street is focusing on’speed’ rather than’level’ of inflation and US 10-year Treasury yields.

Both indicators have risen from last year when the corona19 crisis was serious, but they are still low compared to before the pandemic. It would be okay if the Treasury bond rate rises further, but it is said that a faster-than-expected speed is a problem.

Experts are urged to take measures by the Fed to control this, seeing the sharp rise in inflation and bond yields as non-ideal when concerns remain about the re-proliferation of Corona 19 and the pandemic situation has not completely ended.

On the other hand, the Fed argues that the surge in inflation is only a temporary phenomenon due to the base effect, and for the first time, it is more focused on employment indicators than government bond yields and inflation. “This message from the Fed shows that the Fed doesn’t care about inflation right now,” said Brian Vesoon, professor of economics at Tufts University.

In response, Wall Street Investment Bank Wells Fargo said, “At the press conference on this day, Chairman Powell did not say’a word’ that would lower long-term interest rates,” and predicted a further rise in US 10-year Treasury yields.

Wells Fargo predicts that the US 10-year Treasury bond rate will rise to 1.75% within a few weeks and reach 2% at the end of the year, according to Barence, a US investment media. The U.S. 10-year Treasury bond rate was 1.297% until February 18, a month ago, but rose to 1.6% or more as expectations for economic recovery increased due to the distribution of the Corona 19 vaccine.

Wells Fargo pointed out that in a situation where large-scale government bonds are being supplied, the Fed seems to have tolerated government bond yields, raising uncertainty in the bond market. “(Chairman Powell) did nothing, but did it,” said Paranello, indirectly pinpointing that there was no new content in Chairman Powell’s remarks.

The Fed lowered the standard interest rate from 1.00 to 1.25% at the time of March last year to the’zero’ level, and until this day, it decided to freeze a total of eight consecutive times, maintaining the interest rate from 0 to 0.25% for the first year. It also said that there will be no interest rate hike until the economy recovers to the pre-pandemic. However, Wall Street raised its voice that the possibility of an early rate hike should not be ruled out.

According to a dot chart showing the prospects of the Fed and FOMC members on the benchmark interest rate, 4 out of 18 members voted for the 2021 rate hike at this meeting. In particular, one of them predicted that there will be two hikes, suggesting the standard interest rate level at 0.50~0.75%. Only one member predicted an interest rate hike next year in the dot plot in December of last year.