Today, FOMC probably won’t change rates or asset purchases. Markets will focus more on Powell’s speech. Since December, inflation expectations start to shift up and with the start of 2021, it is pricing above %2 for the first time since 2018. Several FED members talked about possible tapering at the end of 2021 and 10-year bond yield and 10-year breakeven immediately move past %2. Today Powell will try to convince the markets that it is too early to talk about tapering, FED will continue to support the economy until the employment problem resolves and inflation becomes steady around %2.
Depending on how convincing Powell will, the dollar index may leap above the 50-day moving average or stay below it in the short-term. But Biden’s stimulus plan will be more important for the medium term. While it is unlikely, if congress passes the $1.9 trillion bill, markets will start to talk tapering earlier.
Press will probably ask Powell about the stimulus package, what he thinks about the size of the package, how it can affect inflation. Also, Powell’s term will be over in the first quarter of 2022. According to surveys, Biden will probably ask Powell for another term. Powell may take a question about what is he thinking about another term. Also, we may hear questions about the short squeeze mania that started with GameStop.