Fed (Fed) Chairman Ball (Jerome Powell) on Thursday (4) said that the current phenomenon of Inflation but did not show hidden worries, however, because he did not mention the future direction of monetary policy, triggering a wave of selling in the stock and bond markets. Wall Street believes that inflation is actually the biggest nemesis of the bond market.
Bauer said on Thursday to participate in the Wall Street Journal (WSJ) online talks, the United States since the Epidemic in the recovery of the economy may face some price pressure, but this is roughly the base period effect, that is, prices in the next few months look relatively high compared to the same period last year, and last year because of the outbreak of the epidemic, inflation slowed. This is not enough to prompt the Federal Reserve to raise interest rates, the Federal Reserve will strive to achieve full employment, hoping to allow inflation to reach the goal of maintaining or exceeding 2%.
After Bauer’s speech, the bond market and the stock market were both sold off, the 10-year U.S. bond yield climbed to 1.573%, the three major indices fell at least 1%, the Nasdaq Composite Index fell more than 2%.
Wall Street believes that inflation is the biggest reason for this wave of bond market sell-off. First of all, the long bond yield rise during the inflation will erode the capital of the bond, and the yield often can not keep up with the inflationary pressure. In addition, if the inflation rate rises, meaning that the future interest earned by holding bonds will be reduced.
Bauer said that the recent spike in colonial interest rates has successfully attracted his attention, he is concerned that the current market is in a state of disorder, the financial environment tightening, but did not raise any warning.
Wall Street closely observe whether the Federal Reserve will adjust monetary policy. Compared with the rate increase, some economists and investors are more focused and look forward to the Federal Reserve will carry out a reversal of the operation (Operation Twist), that is, by selling short bonds and buying long bonds to adjust the long and short bond yield to flatten the yield curve.
Peter Boockvar, chief investment officer of Bleakley Advisory Group, said: “The market financial environment will change or not depending on whether the Federal Reserve tightens monetary policy, in the face of higher expected market inflation rate, if the Federal Reserve becomes more dovish, the financial tightening will intensify. “
Boockvar added that the Fed officials have been in a difficult situation, they originally expected to reach full employment before the target, inflation will not reach 2%, but the current market direction, the Fed to focus on full employment, the potential must face higher than 2% inflation rate.