Like the old E.F. Hutton ads, when Fed Chair Jerome Powell talks, people listen.
Stocks rose, while bonds fell after Jerome Powell said he was inclined to back a quarter-point U.S. rate hike in March to combat inflation that is “too high.”
In a broad-based equity rally, financial and industrial companies led gains in the S&P 500. The two-year Treasury yield — which is more sensitive to imminent Federal Reserve policy moves — was near 1.5%. The Fed chief also noted that the central bank is prepared to be more aggressive if inflation is more persistent than expected, while adding that he’s open to “series of rate increases” in 2022. Investors also assessed the latest geopolitical developments, with oil paring gains after earlier topping $110 a barrel.
WTI Crude futures are up to $107.05 a barrel.
Natural Gas (UK) rose 34.58% to 100.28. Wheat is 7.62% to $1,059.
The 10-year Treasury yield jumped 11 Basis Points on Powell’s comments. And Eurozone yield are up nearly the same amount.
Powell signalling a more moderate rate expansion led to the Dow rising over 500 points (up 1.65%).
Based on core PCE growth of 5.21%, the Mankiw specification of the Taylor Rule model infers that The Fed Funds Target rate should be … 13.40%. Since The Fed’s target rate is only 25 basis points, a 25 basis point increase is modest indeed.
Mortgage rates are down slightly today, but you can see the separation between The Fed’s target rate and the 30-year mortgage rate.