Behind the comeback on Wall Street: Powell – “The economy is far from inflation targets”

The feeling among investors that since the Fed’s massive support for the financial markets during the Corona crisis, which included a rapid response to lower interest rates, nothing could ‘bring down’ the market, was felt even more yesterday when Wall Street recorded the big comeback on screens. Months.

3.7% declines in the opening of trading on the Nasdaq were wiped out at the end of the day, and it seems that the best advice during declines in the markets of ‘close the screen and go to sea’, was better than ever as yesterday, when the indices erased the dramatic declines recorded.

The expectation of an early and rapid recovery of the economy, which has translated in recent weeks into rising inflation expectations, has illuminated US bonds As an interesting alternative to park the money in it – which weighed on the stock markets, but the Fed provided the goods yesterday and made it clear that the situation is far from good enough to change policy even if it stops. If there is concern in the market that raising interest rates and reducing the Fed’s support will come sooner than expected, then the words of Fed Chairman Jerome Powell yesterday made it clear that music continues, and even in a very June tone.

“The Fed’s semi-annual testimony of Jerome Powell was highly ionic,” said Gil Befman, chief economist at Bank Leumi. “It concludes that” the economy is far from our employment and inflation targets, and it will likely take time for significant progress to be made. ” Is a clear indication that even with a massive budget package, the Fed will not slow the pace of asset purchases until next year.

“In the past year, U.S. monetary policy has undergone a revolution with the adoption of an average-flexible inflation target and the widespread implementation of intervention tools in markets and means of providing credit that were not there before. Powell expresses determination in his desire to achieve a “broad and comprehensive” recovery in the labor market. As Powell noted, “the high level of unemployment was particularly severe for lower-wage workers and African-Americans, Hispanics and other minority groups,” Befman added.

Powell stressed “the Fed will not reduce its expansionary monetary policy in response to a strong labor market.” Befman said that “it seems that this means that the Fed will not make any move as long as the unemployment rate does not return to 4% and below, which is in line with the current estimate of the long-term unemployment rate. Emphasis is expected on minorities and low-wage workers. It seems that the Fed would prefer to define any increase in inflation as a result of “temporary” factors, at least until proven otherwise, in order to avoid a policy reaction to the expected increase in inflation this year. It seems that this June affidavit may lead to a recession. Rising US bond yields recently. ”