The 'Market' Listening Closely to Powell's Words

Jerome Powell, Chairman of the Federal Reserve Board

[Asia Economy Reporter Junho Hwang] This week (23rd-24th), market participants are closely focused on Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), as he reports on monetary policy to both the House and Senate. With growing expectations regarding inflation, understanding Chairman Powell's views on the direction of interest rates is crucial. While major countries including the U.S. maintain accommodative monetary policies, creating liquidity-driven stock markets, the trajectory of U.S. interest rates significantly impacts the stock market as well.

Heechan Park, a researcher at Mirae Asset Daewoo, forecasted, "Chairman Powell is expected to continue expressing a strong commitment to stimulus, but it is most important to carefully identify whether the absolute trust of the financial market in him remains unchanged or if there will be slightly different reactions, such subtle points are key."

The market is listening attentively to what opinions Chairman Powell will express, given the improving economic conditions. Currently, the number of new COVID-19 cases in the U.S. has decreased to about a quarter compared to the beginning and end of the year, and expectations for economic activity resumption after vaccination have increased. Amid expanding inflation expectations, the U.S. 10-year Treasury yield has also risen to COVID-19 levels (1.3%).

Yumi Kim, a researcher at Kiwoom Securities, said, "Recently, Fed officials have continued to argue that economic risks from COVID-19 still remain and that time is needed for recovery, requiring an accommodative monetary policy environment." She added, "Considering this trend, next week Chairman Powell is expected to reaffirm the accommodative monetary policy stance." However, she predicted that such remarks "will provide reassurance to the financial market but, on the other hand, it will be difficult to restrain the upward trend of market interest rates as economic recovery and inflation expectations persist."

U.S. economic indicators this week are expected to improve compared to before. Jonghyun Jo, a researcher at Shinhan Investment Corp., observed, "This week, the U.S. Consumer Expectations Index, new home sales, and Q4 GDP will be announced, and an improvement in key indicators is anticipated," adding, "The impact of additional stimulus measures will be significant."

Retail sales for January, announced last week, increased by 5.3% month-on-month, marking the first positive reversal since October. The copper/gold price ratio rose to 4.7 times, the highest level since May 2019. The bid rates for 3-year, 10-year, and 30-year Treasury bonds in February fell sharply compared to the previous month. As corporate earnings improved, the stock market surged steeply, and the preference for safe assets significantly declined.