Friday’s Response To Powell Is Looking Like A Head-Fake

Friday’s Response To Powell Is Looking Like A Head-Fake

Last Friday's much-awaited Jackson Hole symposium featuring Fed Chair Jerome Powell helped to clarify the central bank's intentions: if the employment situation continues to improve, the Fed will begin to taper asset purchases before year-end. This was the timeline intimated by the Fed for months and shouldn't be a surprise to anyone paying attention. Risk assets including the stock market and crypto surged in the immediate response to Powell's language. Since then, the reaction's been more muted. Small-cap stocks gave some of that rally back on Monday as investors piled into growth tech. On Tuesday, that leadership flip-flopped again. In cryptoland, bitcoin's initial enthusiasm was short-lived and is now back below 48, 000. And then there's the Treasury market. Bond yields declined around Powell's statement, then leveled off on Monday and edged higher late Tuesday. This is where investors' focus should be. We have no better answer today than we did a week ago to the most important mystery of financial markets this summer: why did the Treasury yield curve collapse? If you think you know the answer, stop. You don't. There are plenty of explanations, many of which could work in tandem with one another, but they all ultimately