For markets, US Federal Reserve chief Jay Powell is the Grinch who stole Christmas. But the festive shakeout in bonds, currencies and stocks now under way in the wake of the US central bank’s latest pronouncements is a mini-crisis of investors’ own making. Fed meetings, and the minutiae of its public statements, are always marquee events for investors, setting the tone across all major asset classes.
Wednesday’s meeting, the last of 2024, always came with the potential for greater punch, given the timing — right on the cusp of Donald Trump’s second stint in the White House. The decision on rates itself — a quarter-point chop off the benchmark — was in line with expectations. But it went downhill from there, as the central bank’s apparent cooling on further cuts next year — an allusion to the potentially inflationary impact of Trump’s economic policies — has gone down like a mouldy mince pie. US stocks nosedived, wiping out almost all of the gains in the S&P 500 benchmark index since Trump’s re-election day. The following morning brought a similar sea of red across Asian and European stocks too. The dollar popped higher, sending the euro and yen tumbling awkwardly hard, and US government bonds weakened, sending the yield on 10-year Treasuries forcefully above 4.5 per cent. The Fed chair is facing some flak here. His comment in the post-meeting press conference that the year-end projection for inflation has “kind of fallen apart” is not the sort of self-assertion that investors seek in a Fed chair, and the pick-up in some inflation measures comfortably predates the reinauguration of Trump. But markets are going through the wringer in no small part because the consensus among investors about the next steps for markets had become so intense — curdling hard around the themes of American exceptionalism in stocks and the vanquishing of inflation keeping bonds well supporte