Out with the old, and in with the new. It appears that Jerome Powell is ushering in an entirely different era at the Federal Reserve, in more ways than the obvious leadership transition.
The beginning of his tenure has been defined by ramped up market volatility, a pickup in rates and the consensus that inflation is ticking higher after a prolonged period of price suppression.
Unlike his predecessor Janet Yellen, Powell has unambiguously signaled that the Fed focus has switched from nurturing growth to controlling inflation. While early 2018 data have yet to show a marked pickup in prices, the trend has been inexorably higher.
The most recent monthly reading of core personal consumer expenditures, the central bank’s preferred inflation gauge, on Thursday morning posted its largest month-over-month gain in a year. On the other side of the coin, workers’ incomes are rising due to tax cuts and to hikes in minimum wages.
All of this suggests the markets may be grossly underestimating the Federal Reserve’s resolve to hike interest rates, which may impact a variety of asset classes.
The 10-year Treasury yield has a good chance of breaking above the 3 percent threshold, the dollar may have just found a floor, and the market volatility seen in February could be just the beginning of a rocky year ahead.