Test the waters?

Source: Hedgeye, Morning Wrap

Is the Federal Reserve’s rate hikes scary for investors? Treasury Secretary, also the former US Fed chairman, Janet Yellen is trying to make it less “scary” - saying that it could be a “plus”.

What did Yellen say to the wary investors?

Yellen said Biden’s USD 4 tln spending plans should be pushed forward, even if they trigger inflation that persists into next year and higher interest rates. 

  • It’s a plus: ✅ “If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view.”

It reminds me of something similar before…

I’ll be very glad if you still remember. Exactly one month ago, Yellen suggested that interest rates may need to rise slightly to keep the economy from overheating. Bang! 📉 Those remarks soon rattled financial markets, with tech shares leading the declines. 

Just hours later, Yellen clarifies that she is not “predicting or recommending” interest-rate increases. A way to calm down investors? 🤔 Stocks slid further after her remarks, though later pared losses. 

Then how did investors react to Yellen’s remarks this time?

The market got some time to digest before Monday’s market opening. But it comes together with the tax deal that targets tech giants. (see our story yesterday). 👈

  • The S&P 500 and Dow Jones turned lower after earlier climbing toward all-time highs, as investors weighed inflation risks and the impact of global minimum tax.
  • Ten-year US Treasury yields rose from the lowest since late April after Yellen’s “plus” remark.

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