Market Calm after Fed Chair Speech Eases Rate Hike Speculation

After short-term yields went up based on speculation of interest rate hikes and inflation, the market’s pace changed drastically after Powell’s speech about waiting for further recovery. Bonds went up and fell back to 1.5% after pushing the 10-year yields.

The Federal Chair’s position on keeping interest rates steady would help reduce price swings after investors speculated on asset tapering timeline. The ICE BofA MOVE Index fell this week after a long 19-month high. The backward shift in the market reflects that policy makers are not pursuing an aggressive stance. Other assets like equities are also likely to reap benefits from a more calm and stable market.

Michael Darda, market strategist at MKM Partners said, “The market should be calmer for the next few months. Powell went out of his way in saying they don’t think they are close to meeting the criteria for rate hikes.” On the other hand, a positive jobs report released on Friday indicates towards a growing labor market. Other factors which add to market volatility have also declined such as the Cboe Volatility Index.

©Photo: Susan Walsh / Pool via Reuters