Taper headlines led to a momentary move
The key headline from Powell was: "now is not the time to be talking about exit" in regards to QE and that "when it does become appropriate for the committee to discuss specific dates" it will be done "well in advance."
The dollar dipped on the headline but has since rebounded.
The market is increasingly preoccupied with inflation, the recovery and higher rates in the past week. Much of that is tied to US spending and stimulus hopes following the Georgia runoffs.
The market is trying to balance ongoing QE with a better economy and unsure how long the Fed can keep printing and keep rates at zero. Powell touched on that when he said "there are a lot of reasons to be optimistic about the US economy" (he said it with strong emphasis on 'a lot') and that we "could be back to the old economic peak fairly soon."
In essence, the market is struggling with what Powell says he will do and what he will actually do. If inflation rises his hands are tied and he's going to be put through the pressure-cooker in Q2 and Q3.
The Fed is psyching itself up for that and highlighting that it will look through a temporary rise. Fed officials also said they want to see a full year of inflation above 2%, in a comment that as largely ignored yesterday.
The bond market isn't exactly buying what Powell is selling. US 10-year yields are now up 3 bps on the day to 1.11%, just under the daily high. With potentially 'trillions' in stimulus announcements coming at 7:15 pm ET, risks are on the upside for yields and for the US dollar.
