TOKYO – It’s safe to say Jerome Powell had Asia investors at “wait.” Markets in the region rallied on cue Wednesday as the Federal Reserve chairman made clear that rumors of an imminent US interest rate tightening were greatly exaggerated.
“We will wait for evidence of real inflation or other indications,” Powell, who argues the recent inflation scare is “transitory,” told US lawmakers.
That, notes economist Shane Oliver at AMP Capital, means the type of sudden Fed tapering Asian markets fear is “still a long way off, because even the first rate hike is still a long way off.”
Yet a destabilizing inflation surge might not be far off at all. The Fed losing control of consumer prices could devastate markets everywhere. In all past US inflation cycles, eventual Fed tightening led to recessions, often deep ones.