Powell's Statements Caused Volatility in the Markets

Powell's Statements Caused Volatility in the Markets

Powell's statements caused volatility in the markets. Fed President Powell reported that the inflation target is 2 percent. Important decisions came from the Jackson Hole meeting held yesterday by the US Federal Reserve (FED). From the meeting, which the markets had been waiting for for a long time, it was decided that the inflation target would be 2 percent. So what does this decision mean? The US Federal Reserve (FED) announced for the first time in 2012 that the inflation target was 2 percent. After this announcement, inflation reached 2 percent levels several times in 8 years, but did not exceed 1.5 percent on average. This meant that the FED was not meeting the target in the medium term. As a result, the FED had increased the interest rate increases due to inflation. However, when inflation slowed down with the crisis created by the coronavirus (Covid-19) pandemic, the FED paused its policy of increasing interest rates. Markets had been waiting for this meeting for a long time. Finally, at the Jackson Hole meeting held yesterday, it was said that the inflation target was the average target. However, this statement created the perception in the markets that inflation would remain below the target. As a result of the movement created by this perception, the dollar fell, gold, euro and indices rose; bond yields started to decline. When Jerome Powell used the expression "if inflation exceeds the average target, we will take action accordingly" in the continuation of his statement, prices started to move in the opposite direction. With the effect of these statements, there was a fluctuation in the markets yesterday. The reason for this fluctuation was that it was regarded as "very unlikely" for the FED to exceed its inflation target in the medium term. Before Jerome Powell's announcement, the markets were looking highly at the possibility that the FED would keep interest rates at the lowest level within an average of 5 years. What do we see when we take a look at the FED's past interest policies? FED had not been quick to increase the interest rates, despite the increase in inflation before. For the FED, inflation means cause and interest means effect. Therefore, the Federal Reserve prefers to watch the declines in inflation for a while. In addition, the FED thinks that the term 'average' is a correct expression in order to communicate correctly with the markets and to ensure reliability. When we look at the markets on the last trading day of the week, we can see an increase in the assets of developing countries. The best performance in this uptrend is the South African rand, peso and ruble. When we look at the dollar / TL exchange rate in this rising state, we see that it is traded at the level of 7.32. Stating that the inflation may be high in August after the MPC meeting yesterday, the center included the increase in the exchange rate in the Isk section and emphasized that tight policies will continue. The center's failure to revise its inflation target naturally causes a negative impact on the markets. On the other hand, if we look at the statements in the MPC text with a general approach, the center points out that the reason for the increase in exchange rates is the increase in costs. The center says it keeps its monetary policies tight due to the increase in inflation. However, the interest rate is still at 8.25 percent. If the interest rate is low, why is inflation high? Perhaps in this case, the inflation that causes interest should be looked at as a result. When we take a look at the pricing; The ounce gold price is trading at $ 1,955 today. At this point, above $ 1,930, the $ 1,965 -1,983 and $ 2,034 levels will be followed as resistance. Current developments support the upward trend below, but new developments may be required for the $ 2,000 levels. The euro / dollar rose again to 1.19, followed by a short-term uptrend above 1.15. 1.25 point is important for change in the medium term. It seems to be limited to below 1.1780 now. As for the USD / TL exchange rate, it is traded around 7.30 after its peak at 7.4180. Although there was a slight decrease, the price is still very high. On the other hand, TL remains very weak compared to the rise in risky assets. 7,16 can be followed as the first support. In addition, the inflation expected to be announced next week is important for the pricing of the TL.