Powell finally back on track with market expectationsSure enough, Powell did not disappoint Biden, who had just appointed him.Powell, who was reappointed as the next chairman of the Federal Reserve, attended the hearing overnight, and his remarks can be said to have staged a major reversal from what he had always insisted on before. Aiming at the market and the public’s constant worries about high prices and high inflation, Powell said for the first time that he would no longer describe inflation as “temporary”, indicating that monetary policy will be adjusted soon to deal with high inflation. In addition, Powell also expressed that he may consider completing it several months in advance In the past November, the Fed has just begun to reduce the original $120 billion monthly bond-buying program. The overall remarks can be said to be a big reversal from what Powell said earlier, and it is also closer to the current market expectation that the Fed will need to speed up debt shrinkage and raise interest rates in advance.Affected by Powell's "super eagle chasing dove" remarks, U.S. stocks fell sharply overnight. The S&P 500 and the Dow both fell nearly 2%, and the Nasdaq fell 1.6%. U.S. bonds rose, and the 10-year Treasury yield fell to 1.44%. Powell’s remarks once brought the U.S. dollar index back to the 96.50 level, but then fell back to around the current 95.90 level. The safe-haven yen and Swiss franc led the gains, but gold From up to down.Addressing inflation will be the top priorityPowell's sudden change of state is actually not "nothing."In fact, Biden's appointment of Powell just now is the latest nomination in the United States in the past 40 years. Although most voices in the market expected that Biden would appoint Powell again, the decision has not been announced for a long time, reflecting that the appointment of Powell is quite controversial within the Democratic Party.On the other hand, the Democratic Party suffered a big defeat in the state elections in early November. The results of the election indicate that the current situation in the midterm elections in November next year is also unfavorable to the Democratic Party. , leading to high inflation and poor livelihood. Therefore, in the past month, Biden proposed to release oil reserves to suppress oil prices. In order to suppress inflation, the Fed's policy tools are of course the top priority.Therefore, from this point of view, Powell suddenly changed his attitude after the new appointment, paid attention to the inflation issue, and predicted that the debt shrinkage will be completed early.Whether the market will be turbulent depends on whether there will be a rapid rate hikeAlthough Powell surpassed the eagle overnight, it is not a new thing for the market to speed up the pace of debt reduction and interest rate hikes in response to high inflation rates. Looking at interest rate futures from Bloomberg data, the market believes that the Fed will change its attitude before Powell changes its attitude. The probability of raising interest rates in June 2022 has reached 61%. After Powell’s remarks, he believes that the probability of the Fed raising interest rates in May 2022 has immediately risen to 57.9%, and the probability of raising interest rates in June has reached 91.2%, reflecting that the market has already raised interest rates. Pricing The Federal Reserve will start raising interest rates in the middle of next year, which means that the debt reduction plan needs to be completed before the middle of next year.Therefore, in fact, the market has long expected the Fed to reduce debt and raise interest rates in advance, and some investment banks have even predicted that the Fed will raise interest rates three times next year. As the market has long expected, the sharp drop in US stocks yesterday is more of a small adjustment than a scare "The general direction has changed", and the dollar fell back after a surge.In summary, the Fed has completed debt reduction several months ahead of schedule, and it has been widely expected by the market to start raising interest rates in the middle of next year. It is not a great surprise. Therefore, the chances of US stocks hitting new record highs after this minor correction are not low.However, how the Fed responds to high inflation in terms of specific actions and actual steps may be a factor that will shake the market in the future.Although Powell is known by the market as a moderate dovish monetary policy supporter, and has always expressed a more conservative stance on debt shrinkage and the pace of interest rate hikes, in fact, Powell is not soft on the pace of interest rate hikes.What is still fresh in my memory is that when Powell took over Yellen, the market thought that Powell would raise interest rates slower and more conservatively than Yellen, but in the end, after Powell took over, he raised interest rates three times in 2017 and even more in 2018. 4 times, which eventually led to a slowdown in economic growth and inflation, but in 2019 it was necessary to cut interest rates 3 times in a row. At the end of 2018, the U.S. stock market experienced a major adjustment, and the U.S. dollar continued to rise in 2018-19.Therefore, whether Powell will raise interest rates again on a large scale and rapidly in response to high inflation is a lesson learned from the past, and it is also a risk worthy of attention.However, in the short term, Powell's chances of rapidly changing his stance to boost the pace of interest rate hikes are still low. In the first 10 months of 2021, both Powell and the Fed's stance on monetary policy adjustments have been slower than market expectations. It will still take some time for market expectations to be developed and implemented.Therefore, for the U.S. dollar and U.S. stocks, unless the Fed threatens to end its bond-buying program in the short term and will have a large-scale interest rate hike plan next year, otherwise, maintaining the stance of accelerating debt shrinkage and slowly raising interest rates next year will be insignificant to the market. It is a wise move, and it is also traceable and predictable. The chance of major turmoil in the US stock market and the US dollar is not great.