Powell's Inflation Stance Calms Bond Market Amidst Rising Oil Surge

Federal Reserve Chairman Jerome Powell addressed inflation expectations at Harvard University, emphasizing the U.S. central bank's focus on well-anchored inflation expectations and looking past short-term oil price shocks. His remarks significantly influenced the bond market, indicating a less hawkish outlook from the Fed.

The U.S. central bank is currently focusing on well-anchored inflation expectations and looking past short-term oil price shocks.

Bond Market Responds to Powell's Remarks

The U.S. 10-year Treasury yield decreased by nine basis points, reaching 4.35%, following Powell's comments. Simultaneously, the 2-year yield slid by eight basis points to 3.83%. Further reflecting a shift in sentiment, the probability of one or more Fed rate hikes in 2026 fell dramatically to 5% from 25%, according to CME FedWatch data.

Broader Market Performance Mixed

Despite an early rally, U.S. stock markets ultimately declined by the close. The Nasdaq finished 0.75% lower, and the S&P 500 decreased by 0.4%. Bitcoin also gave up earlier gains, stabilizing around $66,500 and showing little change over a 24-hour period.

Oil Prices Continue Upward Trend

This broader market sentiment was affected by a continued increase in oil prices. WTI crude oil rose by 5.3% on Monday, nearing $105 per barrel. While WTI had traded above $100 since the Iran conflict began, it had not closed above this level since 2022, marking a significant milestone.

Powell commented on the situation, stating:

"We will eventually maybe face the question of what to do here. We’re not really facing it yet because we don’t know what the economic effects will be."