Market Extra: Stock-market bulls defiant as bond market surrenders to Fed. Here’s what to watch.

by | Feb 16, 2023 | Stock Market

The U.S. bond market blinked. It took a while, but Federal Reserve Chair Jerome Powell has prevailed in a contest that for a while saw traders refuse to price in a higher and longer-lasting rise in interest rates in 2023. The capitulation has also lifted the U.S. dollar and in turn put a lid on commodity prices.

But it hasn’t rattled a stock market that’s enjoyed a strong bounce to start the year. Investors wonder whether that can last.What’s happening Flash back to the conclusion of the Fed’s policy meeting on Feb. 1. Powell warned — and repeated the message the following week — that the Fed was set to raise the fed-funds rate above 5% and keep it there in 2023. But fed-funds futures traders saw it peaking below 5% and had priced in rate cuts by year-end. Then a run of economic data began to flow in. A red-hot January jobs report on Feb. 3 was followed by Tuesday’s consumer-price index reading that showed inflation continued to slow but was proving sticky in important areas. Wednesday delivered a much stronger-than-expected January retail sales reading. A producer-price index reading for January on Thursday also came in hotter than expected. And Cleveland Fed President Loretta Mester, who isn’t a voting member of …

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