Yesterday morning shortly after the initial liquidation puke which saw tech shares tumbles, we had some “words of comfort” for all those fearful that the Fed may hike rates in the coming months saying basically “relax, it won’t”… if for no other reason than global debt is set to surpass $360 trillion by 2030 and rates simply can’t rise, a point underscored as DB strategist Jim Reid who said “with debt so high and likely to go notably higher, it is likely that real yields will have to stay artificially low for a very long period of time. Any return to something close to long-term averages would have grave consequences for debt sustainability. The Fed would likely step in well before this point… Financial repression and QE will likely be alive and well for the rest of most of our careers.”
It took a few hours for this message to spread, and Powell’s soothing Day 1 testimony to Congress to hammer this point, before markets “unclenched” and realized that the Fed will indeed do nothing for the foreseeable futures, and as Bloomberg writes this morning, “the volatility in global bond and equity markets is easing today after Fed Chair Jerome Powell’s reassuring comments to the Senate Banking Committee yesterday. He signaled that the central bank is nowhere near pulling back its economic support measures, saying there was still a long way to go to reach their inflation and employment goals.”
Powell also said that the recent run-up in bond yields that has unsettled the stock market “a statement of confidence” in a robust economic outlook, and added that any Fed action would be telegraphed well in advance, which meant just one thing: no tightening for the foreseeable future, despite the market’s recent freakout.