Despite Federal Reserve Chairman Jerome Powell's attempts to calm nervous lawmakers last week during a regular senatorial address, investors and markets still appear to be anxious over inflation and recovery as the coronavirus pandemic continues to wreak havoc on the economy.
Last week, Jerome Powell issued a regular testimony before the Senate Banking Committee, speaking on the United States' economic recovery and topics such as inflation and the stimulus measures sought by congressional Democrats. In general, Powell warned that the U.S. has a long way to go in terms of unemployment but expressed optimism that the U.S. was on a good track for recovery. Powell also didn't appear to be worried about inflation, stating that the government has the tools to address it, even if it does become a problem.
Powell's Tuesday address was overshadowed by a spike in bond yields on Thursday, which dealt a blow to Wall Street and stressed investors across the country, reigniting fears of inflation and economic recovery even after Powell's reassurances. The drop began around 2:30 in the afternoon, with all three major indices turning south at about the same time. The Dow Jones Industrial Average (NYSE: DIA) slid 2.3% through Thursday afternoon before bottoming out Friday morning, while the Nasdaq Composite (NASDAQ: QQQ) and S&P 500 (NYSE: SPY) sliding 2.2% and 2.1%, respectively in the same period.
The spike in bond yields came due to still ongoing inflation fears, with the prevailing fear being that the Federal Reserve won't act in time if inflation starts to get out of control. The market, essentially, doesn't seem to have accepted Powell's assertions that there is no reason to sweat inflation. The prevailing is that while the government has the tools it needs to combat inflation, the Fed won't be able to react in time to stop it.
Going forward, it's likely that markets will continue to edge lower every time bond yields jump without any likewise reports of overall economic improvement to match. Relief for the stock market is likely tied to the economic stimulus package currently making its way through Congress, as the massive relief package could put enough spending power back into the hands of consumers to boost the economy to match bond yields.