Reactions to Federal Reserve Chairman Jerome Powell Jackson Hole's speech suggest that the market's excessive concerns about code reduction have reversed.
Powell suggested that the Federal Reserve may cut debt purchases starting this year, but it will not rush to raise interest rates. The market's reaction to this is typical: inflation prices have risen moderately, and real interest rates have fallen.
Whether the Federal Reserve starts cutting in November or December, the impact on interest rates won't be much different. What the market is really concerned about is whether traders still believe that the inflationary pressure repeated by the Federal Reserve is only temporary. Powell strongly emphasized that the reason for the recent surge in inflation was only a limited range of goods and services, which were affected by the pandemic and the reopening of the economy. However, in his speech, he mentioned the word “temporary” five times, implying that although reduction may be imminent, the Federal Reserve is in no hurry to follow up on interest rate hikes.
Even if the Federal Reserve begins to reduce the size of asset purchases, the system will be flooded with large amounts of liquidity. When the reduction is completed, there will still be a large amount of US Treasury bonds on its balance sheet, which will continue to support interest rates.