Which Yellen will Powell follow?
20.03.2018 & 21.03.2018
The Federal Open Market Committee meeting in March is not only “live” but will also introduce the policy strategy of the incoming chair, Jerome Powell. Fed Fund Futures are pricing in a greater than 80% probability for a 25bp move at the March meeting, so market impact will be limited. However, known dove Janet Yellen started to “flip the script” in January. The Federal Reserve sounded more hawkish as Fed Chair Yellen's tenure came to an end. Yellen’s last meeting signaled approaching hikes to U.S. households and businesses, as cyclical pressures associated with tighter labor markets convert into higher inflation. Yellen leaves the Fed after four years as chair; in her tenure she began the gradual process toward “normalization” via higher interest rates and shrinking the Fed's balance sheet. Despite Yellen’s dovish reputation, she started the strategy of reversing extreme crisis-level monetary policy. Incoming Fed Chair Powell is expected to follow Yellen’s lead. Yet, will Powell follow the early dovish or late stage hawk Fed policy? The possibility that he will carve out a new strategy cannot be dismissed, either. This uncertainty over Powell’s approach will drive market volatility.
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