Thursday (4) Ball speech does not seem to satisfy investors, the past few weeks the bond market sell-off wave caused his attention, the Fed will not sit idly by, but Ball did not mention any specific measures, triggering market turmoil, U.S. stocks setback, U.S. bond yield jumped.
After Bauer said last week that he welcomed the rise in long-term U.S. bond interest rates, Bauer made a different statement on Thursday at the Wall Street Journal webinar. Bauer said, “I’m concerned that a disorderly state of the markets or a continued tightening of the financial environment could threaten Fed’s ability to achieve its goals.”
The market is concerned that the $1.9 trillion fiscal stimulus package introduced by Biden will overheat the economy and lead to Inflation.
Bauer responded that inflation may rise as the economy recovers, but it will be temporary and these pressures may not be enough to spur the Fed to raise rates.
Bauer mentioned that the Fed patiently accept higher inflation, which may be a one-Time effect, rather than a year-to-year continuation of price growth.
Bauer also mentioned that the current forward guidance is very specific. “This is the picture of an almost complete economic recovery. It’s going to take some time.”
However, Bauer reiterated that the Fed is still a long way from achieving its goal of maximum employment and stable 2 percent inflation. The current policy stance is appropriate and the Fed is prepared to use the tools at its disposal to facilitate the achievement of the target if conditions change materially.
The market reflected negatively on Ball’s speech, the U.S. Dow Jones fell more than 500 points in response, the 10-year U.S. bond yield rose more than 7 basis points, wearing up 1.55%, the panic index VIX rose more than 12%.
Christopher Low, chief economist at FHN Financial, said the market’s reaction to Ball, including a rise in long-term colonial rates, may reflect confusion about how Fed works. Some had thought that Ball would commit to policy actions today, particularly extending the duration of the Fed’s asset portfolio.
Christopher Low said, but Ball will never announce Operation Twist (operation twist) at a corporate-sponsored event, especially 2 weeks before the FOMC meeting.
The Fed will hold its regular meeting on March 16-17, before Fed officials will remain silent and will not make any public statements.
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