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Abstract:Everyone involved in the financial industry is aware that the main reason for investors continuously buying the American stocks is that they believe that the economic stimulus and infrastructure plan carried out by the Biden’s administration can inject impetus to the economic recovery in the country. Driven by this thought, investors constantly buy financial products benefiting from these policies, causing three major indexes in the U.S. stock market to repeatedly break all-time highs.
Everyone involved in the financial industry is aware that the main reason for investors continuously buying the American stocks is that they believe that the economic stimulus and infrastructure plan carried out by the Biden‘s administration can inject impetus to the economic recovery in the country. Driven by this thought, investors constantly buy financial products benefiting from these policies, causing three major indexes in the U.S. stock market to repeatedly break all-time highs. It is worth noting that the purchase of related stocks is not ascribed to their confidence in Powell even if he has been striving to send dovish messages in the first half a year to keep monetary policies relaxed and the financial market stabilized. Hence, it is the stimulus plan stipulated by Biden’s government that leads the American stocks to all-time highs time after time because only the stock markets in Germany, Australia, and Canada have seen the same situation when the central banks worldwide hold dovish attitudes as the Federal Reserve (Fed) does.
Powell attended the Congressional Hearing last week where he was criticized aggressively by the Senate and the House of Representatives despite the rapid growth of the American economy recently. Among them, Pat Toomey, the Senator from the Republican Party, challenged the competence of the Fed in predicting the duration of inflation after it admitted its incompetence in estimating the potential severity of inflation. Most members have indicated that policies made by the Fed have worried them as the escalating inflation is severer than predicted by the general public and the Fed.
Powell was denounced by both sides most of the time during the two-hour hearing as the majority questioned his understanding of inflation and the effectiveness of his precautionary responses to the exacerbating inflation. In this case, even though Biden and Yellen may reluctantly nominate Powell for a second term, an agreement will be hard to reach with Congress because of its firm opposition to his reappointment and the strong dissatisfaction over his performance. At present, Biden and Yellen have shown their satisfaction over Powell but given equivocal answers relating to the decision on Powell‘s renewal amid interviews. Apparently, they didn’t tell the truth.
In my opinion, Powell may not solve the issues caused by inflation in the U.S. that is more likely to interrupt the economic recovery even trigger stagflation. He may plan to maintain the stability of the financial market and make the American stocks hit new highs by neglecting the worsening inflation and insisting on dovish attitudes to highlight his achievements so that he can obtain reappointment. Consequently, Powell wont take real responses to the severe inflation with hawkish attitudes until he gets the final decision on his renewal regardless of success or failure. In this way, DXY is possible to rise more. Moreover, the strong USD can effectively curb inflation from exacerbating.
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The views in this article only represent the author's personal views, and do not constitute investment advice on this platform. This platform does not guarantee the accuracy, completeness and timeliness of the information in the article, and will not be liable for any loss caused by the use of or reliance on the information in the article.
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