The Fed and the bond markets

JEROME POWELL does not want you to misunderstand him. The Chair of the Federal Reserve knows that communication is a big part of how monetary policy works. Mr Powell speaks plainly. He is not an economist, but that probably helps, because he is less likely to resort to confusing jargon. His messages at the Fed’s press conference on March 17th were admirably clear: no change in the main policy settings; no change in Fed guidance about future shifts in policy; and no real concerns about jumpy government bond markets.

That latter message might seem a little surprising. The sharp and volatile rise in the yield on ten-year Treasuries since the start of 2021 has been routinely compared to the “taper tantrum” of 2013, when markets threw a fit in response to hints that the Fed would reduce (or taper) its bond purchases. This year’s volatility has been construed by many investors as a challenge to the Fed. Yet Mr Powell was unperturbed. And why not? Looked at in the round the markets have been remarkably compliant.