‘Interest rate chaos’ shakes the stock market… Will FOMC give you an answer?

The’interest rate chaos’ is shaking the global financial market. Treasury yields have seldom risen due to inflation concerns. On the 4th (hereafter local time), Jerome Powell, chairman of the Federal Reserve System (Fed), said that inflation is only a temporary phenomenon. However, the market reaction is different. Rapid inflation fears are driving market volatility.

With the Corona 19 vaccine and ongoing government stimulus measures, optimism about the economy is at its peak. The Wall Street Journal pointed out on the 7th that “The US economy is expected to lead global economic growth this year as it recorded a rapid economic recovery.” As the economy recovers in earnest, funds are being drained from government bonds, a safe asset. Eventually, the rate of return, which moves opposite the price of the bond, has an upward curve.

Of course, the US Fed is in a position to maintain a easing monetary policy for a long time. Bloomberg pointed out that “the US and other central banks are focusing on recovering jobs, and they do not want to repeat the mistakes of the past that struck the market after tightening too early.”

The problem is that the recent dangers are not from stagnation, but from overheating concerns. The Fed’s claim that a modest rise in bond yields is a sign of confidence in the economic outlook, and that a high unemployment rate will curb inflationary pressures is no longer working.

Global economic growth this year will reach 6%, predicted Oxford Economics. The JPMorgan economists also forecast up to 7.5%. This is an unimaginable reversal at the beginning of last year when the Corona 19 crisis hit. In an economy that is heating up faster than expected, voices are growing as to how long the central bank can maintain the easing policy. “Central banks are facing new challenges,” said Rob Canel, chief economist of Asia Pacific at ING Bank NV. “If recovery continues and inflation continues, it is difficult for monetary easing policies to be persuasive for a long time.”

US Treasury Secretary Janet Yellen recently tried to respond to inflation concerns, pointing out that the unemployment rate will be close to 10% and that the job market remains sluggish. But again, the market is paying more attention to the recently improved employment indicators. Last week, the U.S. Department of Labor announced that last month, non-agricultural employment increased by 379,000. It greatly exceeds the expert’s estimate of 210,000 people. The unemployment rate fell from 6.3% in January to 6.2% in February.

The market, which fluctuates according to Treasury yields, is now paying attention to the movement of the Federal Open Markets Commission (FOMC), which is scheduled for 16-17 this month. Earlier, Chairman Powell said he was “mindful” about the recent surge in US Treasury yields. “The current situation is different (from the inflation crisis in the 1960s and 1970s), and the situation has to be changed after not being able to endure for more than a year. There won’t be.” It gave a signal that it would not take additional measures to stabilize interest rates.

Ahead of the FOMC meeting, comments from Powell and other Fed officials will be banned for the next two weeks starting on the 6th. The foreign press pointed out that the market is more likely to become confused without catching any signal. Reuters pointed out, “Analysts are expecting a surge in inflation due to the recent rise in oil prices, which could boost the yield on government bonds, further encouraging the decline in the stock market, especially technology stocks.”