Betting on Jerome Powell’s Intelligence in Asia Becomes Very Crowded

Investors here in Asia are proving to be as susceptible to the busiest trading in global bond markets as anyone else.

The belief that Jerome Powell and his colleagues know what they are doing

This is all about the belief in the markets that Federal Reserve Chair Jerome Powell and his colleagues know what they are doing. It’s a completely open question as gamblers bet that after 18 months of significant strain, Powell and his team will substantially lower interest rates.

The escalating crisis between Israel and Gaza

Factors include the escalating crisis between Israel and Gaza turning into a regional conflict, the ongoing Russian invasion of Ukraine, a new wave of COVID impacting global supply chains, and stronger-than-expected global growth.

The potential risks of excessive easing by central banks

The risk of excessive easing by the Fed and other central banks, along with a failure to read global economic conditions, represents the biggest flaw in global bond markets’ confidence that Powell and his colleagues will sharply cut rates.

Monetary policies in Asia

Some key monetary authorities in Asia are exceptions. The Bank of Japan may be heading toward “tapering.” Meanwhile, the People’s Bank of China has been hesitant to ease policy this year despite slowing growth, a worsening property crisis, and deflationary pressures.

Future forecasts

Nonetheless, the rise in U.S. Treasury yields in the latter part of this week is a warning sign in itself. This indicates that traders are not completely sure what will happen in the coming months.

Will Powell’s luck continue in 2024? Or will the assumption that inflation has been conquered prove wrong? Time will tell. But it is clear that the global bond market is betting heavily on the idea that Powell is indeed on top of things. Let’s hope so.

Source: https://www.forbes.com/sites/williampesek/2023/12/29/betting-on-jerome-powells-smarts-is-getting-too-crowded/