“The Fed’s 2022 speech could really be described as a speech about inflation, publications [de l’indice des prix la consommation] over the year resulting in by far the largest absolute change” in two-year Treasury yields of any other type of political event they studied over the past year, wrote Peter Williams, Krishna Guha and Gang Lyu in a research release Sunday.
They found that the average CPI release last year had twice as much impact on short-term Treasuries as the average Federal Open Market Committee statement, for example.
In terms of market movements, “the sheer volatility around each CPI release is remarkable” and reflects the scale of inflation surprises over the past year and how these unexpected readings have changed the political outlook for the country. Fed, they wrote.
Last year, the Fed was blindsided by the highest levels of inflation seen in 40 years. Central bankers initially ignored mounting price pressures as a temporary factor related to the onset of the coronavirus pandemic, but eventually found themselves behind the curve. They then embarked on a very aggressive rate-hiking campaign that took the central bank’s target rate from near zero in March to between 4.25% and 4.5% by the end of 2022. It is almost certain that rates will rise further this year, although inflationary pressures show some early signs of cooling.
In the report, the authors found that FOMC statements and the press conferences that followed the meetings had a different impact on short-term Treasuries and the stock market. The statement announcing the Fed’s policy actions hit bonds harder, while the press conference, which allows the Fed leader to explain in more detail what the central bank has been up to, had a bigger and more important impact on developments of the S&P 500.
In addition, the Fed meeting minutes, which describe the conduct of the FOMC meetings and are released three weeks after each meeting, also had an impact on the market and were often hailed as more dovish than the FOMC meetings and press conference .
“We suspect this is because the nuance and wider range of predictions and opinions allowed by the minutes tended to allow for more accommodating interpretations than the more limited and focused perspective of the statement and press conference,” the report said. .
Among policy makers, the report found that remarks by Fed Chairman Jerome Powell, Vice Chairman Lael Brainard and New York Fed leader John Williams had a major impact on the market. Christopher Waller, the former director of research The St. Louis Fed chairman who became Fed governor in late 2020 and who has been an avid proponent of aggressive rate hikes has moved the markets.
The report did not categorize the market impact of the other 11 regional Fed leaders, who speak far more frequently than board members and even the New York Fed leader. Regional Fed leaders often present a wider range of views on economic and monetary policy issues, and some central bank observers have complained that the frequency of their comments blurs the message that top Fed officials are trying to get across. Give Way.
Evercore ISI economists believe market drivers will change in the new year.
“With inflation peaking and the federal funds rate now in tight territory, market perceptions about policy volatility and the marginal impact of new data look likely to diminish or at least shift further towards growth concerns. and away from inflation,” they wrote.