I called Jay Powell’s bluff a week ago. Remember when he said last week that we’re still far from The Fed’s inflation targets?
Well, I was right to doubt him. The market didn’t like his change in tone Thursday (Mar. 5).
You see, when bond yields are rising as fast as they have, and Powell is maintaining that Fed policy won’t change while admitting that inflation may ” return temporarily ,” how are investors supposed to react? On the surface, this may not sound like a big deal. But there are six things to consider here:
It’s a significant backtrack from saying that inflation isn’t a concern. By admitting that inflation “could” return temporarily, that’s giving credence to the fact that it’s inevitable.
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Matthew Levy writes: In keeping with last week’s theme, the market has mainly traded sideways this week. However, that correction I’ve been calling for weeks? We have potentially started.
While I don’t foresee a crash like we saw last March and feel that the wheels are in motion for a healthy 2021, I still maintain that some correction before the end of Q1 could happen. Bank of America also echoed this statement and said last week that “We expect a buyable 5-10% Q1 correction as the big ‘unknowns’ coincide with exuberant positioning, record equity supply, and as good as it gets’ earnings revisions.”
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