“It will take three years for inflation to rise”… US Treasury yields rise due to inflation concerns despite appeasing Powell

Jerome Powell, chairman of the Federal Reserve System (Fed), actively appealed to the mayor. By throwing a message stating that the’zero interest rate’ can be maintained for about three years, the company began to address inflation concerns.

Chairman Powell attended the House Financial Services Committee on the 24th (local time) and said, “We will not raise interest rates until the inflation target is achieved. It may take three years or more.” It means that it will continue the current’zero interest rate’ situation for the next three years.

Powell stressed that it would not reduce the volume of quantitative easing (QE), which puts $120 billion a month on bond purchases. Powell said in the Senate the day before that “the US economic recovery is incomplete,” and “There will be no increase in the base rate until the inflation rate reaches the target of 2%.

Powell’s remarks are interpreted to prevent fluctuations in the financial markets caused by inflation concerns. In fact, it maintains zero interest rates, and the market overflows with stimulus measures from each country. In the meantime, if countries around the world shake off the impact of the novel coronavirus infection (Corona 19) and the economy recovers quickly, it could lead to inflation. This is why concerns are growing that the Fed’s rate hike will be delayed.

Indeed, U.S. Treasury yields are rising amid fears of inflation. This is the reason why stock markets in the US and other countries have been shaken recently amid anxiety. Powell came out to alleviate these anxieties and concerns.

“As economic activity resumes and demand increases, the inflation situation may fluctuate, but this is a one-off and does not lead to greater inflation,” said Powell. “If necessary, we have a countermeasure.” US CNBC evaluated that “Powell continued to speak pigeon-like for two days in a row.”

The New York Stock Market was relieved by Powell’s appeasement. On the 24th, the Dow Jones Index rose 1.35% to 31,1961.86, breaking a record high based on the closing price. The S&P (Standard & Poor’s) 500 Index (1.14%) and the NASDAQ Index (0.99%) also rose together.

However, market concerns over inflation have not been completely resolved. US Treasury yields are still upbeat. On this day, the US 10-year Treasury bond rate rose to 1.43% during the intraday. It fell to 1.38% after Powell’s remarks, but as of 3:30 pm on the 25th (Korean time), it rose again to 1.405%.

Patrick Leary, chief market strategist at Incapital, told Reuters, “In reality, the market doesn’t believe Powell’s remarks. The market thinks inflation could be a bigger problem.” This means that they don’t fully believe in Chairman Powell’s investigation.

The perspective of predicting inflation has its own grounds. It is inevitable that inflation caused by the resumption of economic activity and enormous stimulus measures due to increased vaccination is inevitable.

House Speaker Nancy Pelosi said on the 26th that the House of Representatives will deal with President Joe Biden’s $1.9 trillion in US relief plan for economic stimulus. The US Food and Drug Administration (FDA) expressed its opinion that “there are no unexpected safety problems” for Johnson & Johnson’s (J&J) Corona 19 vaccine, suggesting that emergency approval will be made soon.

Powell also left room to say, “I will update my (inflation) assessment every quarter.” The Fed can also take a different position depending on the future situation. Bank of America (BoA) predicted that “the Fed will be “willing to implement a tightening policy at the end of the year (depending on the degree of economic recovery).”

Reporter Seungho Lee [email protected]