**********Federal Reserve Chairman PowellAt the congressional hearing, it was stated that the Federal Reserve is not in a hurry to adjust its interest rate policy and emphasized that the US economy remains strong. This statement prompted the market to adjust its expectations for the pace of the Federal Reserve's interest rate cuts, leading to an increase in US bond yields, while also making investors cautious before the release of key inflation data.
US bond yields climb, market bets on Fed only cutting interest rates once
On Tuesday, the yield of US treasury bond bonds rose across the board, and the market was still fully priced. The Federal Reserve only cut interest rates once this year. At the end of 2024, the market had predicted that there would be two interest rate cuts in 2025. "The market responded smoothly to Powell's speech," said Frederic Neumann, chief economist for Asia at HSBC. "Investors had long expected that the Federal Reserve would not easily take further interest rate cuts, although the door to easing policy remained open." The bond market in the Asia Pacific region was also affected. The yield of 10-year treasury bond bonds in Australia and Japan rose, while the yen fell for the third day in a row, becoming the worst performing currency among G10 currencies.
The market is waiting patientlyCPI dataInflation pressure still exists
Investors are focused on the upcoming release of the January Consumer Price Index (CPI). The market expects the core CPI, excluding food and energy, to rise by 0.3%, marking the fifth time in the past six months that this increase has been recorded, indicating that the trend of inflation cooling is still slow. The recent inflation data, combined with a strong job market, has enabled the Federal Reserve to remain patient and continue to maintain interest rates between 4.25% and 4.50% in March, "said Josh Hirt, an economist at Vanguard. The market's bets on the timing of interest rate cuts have also changed. Currently, traders expect the Federal Reserve to cut interest rates by at least 25 basis points in September, and the strong non farm payroll data released last Friday has prompted the market to reassess its policy path. If the upcoming inflation data is also strong, the expectation of interest rate cuts may be further postponed. It is not surprising that investors have postponed their expectations of interest rate cuts while the job market remains stable and inflation is slightly above the Federal Reserve's target, "said Matthew Weller of Forex and City Index. The global market is showing a trend of differentiation. In the Asian market, the Indian rupee experienced its largest daily increase in two years due to suspected large-scale intervention by the central bank, while the Vietnamese dong fell to its lowest historical level against the US dollar.
The volatility of the commodity market is intensifying
In the commodity market, crude oil prices experienced a slight decline after rising on Tuesday. The market is still paying attention to the sanctions imposed by the United States on the Russian energy industry, and their impact has begun to manifest. Data shows that some Russian crude oil has been delayed due to transportation restrictions, allowing Asian buyers to obtain more favorable prices.
The gold market has experienced severe fluctuations, with gold prices reaching a historic high of $2942 per ounce at one point, then falling back and currently stabilizing.
Edit viewpoint
Powell's latest statement is basically in line with market expectations, but the Fed's cautious attitude towards inflation and employment reduces the possibility of a short-term interest rate cut. Investors should pay attention to the upcoming CPI data to determine whether the path of interest rate cuts will be further delayed.
