The Market Is Totally Unprepared For A Surprise From The Fed
Traders have been talking about the Kansas City Fed’s Jackson Hole economic symposium for months now, and as the big day arrives, there is one word to describe financial markets: complacent.
The Cboe Volatility Index, the informal fear gauge for the stock market, remains subdued, more than 50% below its levels ahead of the U.S. election.
It isn’t just the stock market that is asleep. The ICE BofAML Move index, a measure of U.S. interest-rate volatility, is below July’s peaks, and less than half the levels when Covid-19 struck the Western world. Volatility in the currency market is similarly depressed.
That lack of volatility is a bit of a double-edged sword for the Fed’s policy makers. The half-full argument is that the central bank, despite a cacophony of voices, has by and large successfully communicated its intended course to financial markets. The half-empty argument is that the risk of violent moves in financial markets is great given this complacency.
The world’s financial markets are convinced that Federal Reserve Chair Jerome Powell is not about to throw a curveball when he steps up to the microphone on Friday.
That means, Powell will reiterate the central bank’s plan to reduce bond market purchases but not formally announce the end of the program. If markets are wrong, the fireworks will be something to behold.
© 2021 LeackStat.com
