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BREAKING: Jerome Powell’s surprisingly hawkish comments upend markets

Article By: ,  Head of Market Research
November 30, 2021 11:42 AM

Ostensibly called to testify on the current state of the CARES Act to the Senate Banking Committee, Fed Chairman Jerome Powell relayed some potentially massive comments about the FOMC’s monetary policy (emphasis mine):

  • TIME TO RETIRE THE WORD ‘TRANSITORY’ REGARDING INFLATION, ‘TRANSITORY' MEANS NOT LEAVING PERMANENT MARK ON PRICES
  • THE THREAT OF HIGHER, MORE PERSISTENT INFLATION HAS GROWN
  • RISK OF HIGH INFLATION IS A RISK TO GETTING BACK TO FULL EMPLOYMENT
  • EXPECT HIGH INFLATION THROUGH MIDDLE OF NEXT YEAR
  • CAN CONSIDER WRAPPING UP TAPER A FEW MONTHS SOONER
  • WILL TALK ABOUT SPEEDING UP TAPER AT COMING FED MEETING
  • FOR NOW OMICRON IS A RISK, NOT BAKED INTO FORECASTS

Reading between the lines, it appears that Chairman Powell has grown dramatically more concerned with the risk of sustained inflation, and is therefore looking to end the central bank’s asset purchases sooner than initially outlined.

Market reaction

We’ll have a more thorough report out later this afternoon, but Powell’s comments have already sent a tempest through major markets. US indices, fearing the accelerated end of the easy money train, are testing their lowest levels of the month while the yield on the benchmark 10-year Treasury bond has spiked 6bps off its intraday lows to 1.47%.

Gold has shed a quick 30 points to trade back near $1775 and WTI crude oil is losing 4.5% on the day. In FX land, the US dollar surged nearly 100 pips from its intraday lows and is once again trading higher against its major rivals on the week.

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