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Stocks Tumble After Powell Says “Fed Not Looking At Negative Rates”

Courtesy of ZeroHedge View original post here.

Update (0935ET): The market is throwing a tantrum, demanding – it would appear – that The Fed move to negative rates as following Fed Chair Powell's comments that NIRP "was not in The Fed's toolbox." How long will The Fed allow stocks to drop before they begin to hint that maybe it is back in the toolbox?

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Update: and there it is - after failing to mention negative rates in his prepared remarks, Powell responded to a question from Adam Posen, saying that the FOMC's view on negative rates has not changed and even though Powell knows "there are fans of negative rates, evidence of effectiveness of negative rates very mixed" and as a result "negative rates is not something we are looking at."

As a result, the "Fed intends to continue using tools it has already tried." Powell's comment immediately reversed the initial kneejerk reaction in the market which was surprised there was no mention of NIRP in the initial remarks, and promptly sent gold lower after an initial spike…

… with the dollar and 10Y yields both rebounding from session lows, while Jan 2021 implied rates reversed the earlier move and are again positive.

Of course, this is the same Fed that just two months ago never expected its balance sheet would be anywhere close to where it is now, so while Powell has closed the door on NIRP for now, it will be time to revisit this topic after the next market crash.

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Powell was widely expected to address the historic advent of negative rates priced in by the market to halt the market from pricing in any further NIRP in either 2021 or late 2020, so as to avoid disappointing the market later by saying NIRP won't happen and implicitly tightening financial conditions. However, to the market's surprise, Powell has so far failed to do that, at least in his prepared remarks.

The result was instant, with the dollar tumbling to fresh session lows…

… 10Y yields tumbling…

… gold surging…

… and most ominous of all, traders once again pricing in negative rates for Jan 2021, which were held at bay after yesterday's barrage of Fed speakers who pushed back against NIRP, but Powell's failure to address the topic has clearly awoken at PIRP (opposite of NIRP) vigilantes, who will now push the Fed to see just how far they can go with negative rates.

Powell better address NIRP during the Q&A or all hell will break loose in the Eurodollar strip.


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