In an hour of twists and turns, financial markets went into a frenzy when Federal Reserve Chairman Jerome Powell gave an interview to Bloomberg. There are many indications that the American central bank will change its policy.
Powell’s remarks on Thursday afternoon triggered changes in the stock, currency and bond markets, mirroring market reactions typically seen following his news conferences following Fed interest rate meetings.
The end of the raise cycle?
Powell struck a cautious tone, emphasizing that the Fed was acting prudently as it analyzed incoming data, the changing economic outlook and the balance of risks.
As Powell said during a speech at the Economic Club of New York, economic growth is better than expected, as indicated by strong consumer demand. However, recent geopolitical tensions pose significant risks to global economic activity.
This initially led market participants to believe that the Fed might consider pausing its ongoing rate hike cycle. Market analysts gave 96 percent. chances that the Fed will maintain interest rates at its November 1 meeting.
Changing the narrative
Things took an unexpected turn when Powell participated in a question-and-answer session with Bloomberg’s David Westin. Powell said the economy is coping with high interest rates and that the evidence does not show current policy is too tight. He further emphasized that the risk of high inflation remains a problem.
These comments caused concern among investors, who began to fear that the Federal Reserve could expect further interest rate increases. These concerns resulted in an increase in Treasury bond yields.
Market sentiment showed signs of slight improvement only when Powell suggested that rising Treasury yields could reduce the need for further interest rate increases. However, as investors weighed the ramifications of his comments, uncertainty remained.