PANews reported on April 7 that according to Jinshi, a top observer closely tracking the Federal Reserve's moves pointed out that Federal Reserve Chairman Powell quietly released a hawkish turning signal last Friday, which most market participants have not yet noticed. As Tim Duy, chief US economist at SGH Macro Advisors, made this observation, the Federal Funds futures market's bet on Fed rate cuts continued to heat up. According to the CME FedWatch tool, the market's expectation of a rate cut in May has soared from 14% last week to 60%, and it is expected that the interest rate will drop to 3% by the end of the year.
The 2-year US Treasury yield, most sensitive to monetary policy, fell 8 basis points to 3.59%. Duy noted: "We expected Powell to lean hawkish last Friday, but he went further during a stock market crash, and the market may have overlooked a key signal—which is very scary." Powell introduced new wording in his inflation expectation statement, for the first time emphasizing that long-term inflation expectations (not just one-year) are becoming concerning. More critically, there was a subtle change in forward guidance: he deleted two sentences from the March 7 statement that were used to rule out rate hikes—"If the economy remains strong but inflation does not persistently return to 2%, we will extend the policy restriction period; if the job market unexpectedly weakens or inflation falls below expectations, we will accordingly ease the policy." Duy analyzed: "Although not explicitly mentioning a rate hike, the option of a rate hike is no longer explicitly excluded. Powell was clearly aware that the market is in a free fall when adjusting his wording, which is not obtuse, but deliberate."
