No one knows for sure what Chair Jerome Powell will say in his speech on U.S. Federal Reserve monetary policy Friday. One thing is clear, though: the potential for marketwide shock is sky high.
No one knows for sure what Chair Jerome Powell will say in his speech on Federal Reserve monetary policy Friday. One thing is clear, though: the potential for marketwide shock is sky high.
Stakes are rising. Hedge funds, for instance, are building massive bearish positions against both assets in the futures market, a sign that bears may be gearing up for a hawkish message. Coinciding with heightened volatility, market moves have rarely been so in sync. Tracking 12 exchange-traded funds across regions and asset class, Barclays found that their six-month correlation has increased to 0.34 from 0.19 earlier this year.
Powell’s speech at the two-day conference in Wyoming will be parsed for clues on how much further the Fed will go with its monetary tightening. Despite repeated warnings of late from policy makers that their battle against inflation is far from over, investors have mostly been undeterred from their conviction that a pause or a reversal in rate hikes is on the horizon.
While Powell will try to reset market expectations, Marko Kolanovic, JPMorgan Chase & Co.’s chief global markets strategist, is skeptical that the Fed will be able to stick to its hawkish path for long. In his view, raging inflation, driven by the commodity supercycle and the Covid recovery, would recede naturally as time passes by.
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