Trading Day: Markets soar as Powell brings back 'transitory'

Jamie McGeever - Reuters - 19/03
TRADING DAY
ORLANDO, Florida, March 19 (Reuters) - Parsing the Fed's new economic projections and 'dot plot'
Wall Street rallied sharply and Treasury yields fell on Wednesday as investors bet that the Federal Reserve will look through rising price pressures and continue cutting interest rates this year, after new projections showed that officials now expect lower growth and higher inflation.

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While the median projection of two more rate cuts this year is still policymakers' base case, the underlying 'dot plot' forecasts shifted up closer towards only one. But not quite.
Investors ignored that, however. They also ignored the growing "stagflation" risks and officials' admission that uncertainty is elevated. Instead, they seized on Chair Jerome Powell's belief that tariff-driven inflation will be "transitory" and largely confined to this year.
I will dig deeper into the confusing signals sent by various measures of inflation expectations below. But first, here are the scores on the doors from Wednesday's trading around the world.
Today's Key Market Moves.
  • Wall Street's main three indices all rise sharply, led by the Nasdaq's 1.4% rally.
  • All 10 sectors on the S&P 500 close in the green, led by the 1.8% spike in consumer cyclicals.
  • U.S. Treasury yields fall by as much as 6 basis points at the short end, with the yield curve bull-flattening.
  • The yen briefly falls back through 150.00 per dollar for the first time in three weeks, before recovering late in the U.S. session as part of the broader dollar selloff.
  • The dollar index recovers from Tuesday's five-month low, but halves its gains after Powell's press conference.
  • Gold jumps 0.5% to a fresh high of $3,052/oz.
  • Turkish markets tank after authorities detained President Erdogan's main political rival - the lira fell as much as 14% before closing 7% down at 39.40/$; blue chip stocks sank nearly 6% for their worst day since late 2023.
The Fed's decision to leave rates unchanged was widely expected. This left investors to take their cue from other aspects of what turned out to be a remarkable day that included: significant changes in the economic forecasts, underlying shifts in the "dot plot," Powell's resurrection of "transitory" to describe inflation, and the Fed saying it will slow the ongoing drawdown of its balance sheet.
Before all that, Wall Street's big three indices were up between 0.3% and 0.6%, the dollar was up across the board and Treasury yields were up as much as 5 basis points across the curve.
Much of that was paring back the previous day's moves that were marked by a widespread risk aversion among investors although, interestingly, gold didn't pull back and held onto the $3,000 an ounce area.
But investors took Powell's stance to be extremely "dovish," and stocks leaped...
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