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Ahead of Fed Chair Jerome Powell's press conference on Wednesday, investors were looking for Powell's answer to one question: What does the Fed chair make of the rise in bond yields?
The answer: It's not all about what investors think of us. Which in turn makes higher rates an unlikely factor in changing the Fed's plans on future policy decisions.
In Powell's view, higher rates would only play a major role in future Fed actions under two conditions — persistence and belief.
Powell noted that tighter financial conditions, a concoction the Fed itself calls "a constellation of asset prices and interest rates that are influenced by a variety of factors," have been volatile.
And volatility is "not what we're looking for," Powell said.
Financial conditions that slow the pace of corporate and household borrowing and investment over time could, in Powell's outline, influence the Fed's process. But volatility in this measure for Powell falls into the bucket of "noise" over "signal." Persistence denied.
Moreover, Powell's view is that financial conditions are not being driven by what investors believe the Fed will do next.
In October, the yield on 10-year Treasury notes breached 5% for the first time since 2007. This rise has pressured the stock market and sent 30-year mortgage rates toward 8%.
And in Powell's view, these moves were not rooted in a view of what the central bank's next move would be. Meaning these market moves are not something the central bank needs to respond to with haste.
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
"The longer-term rates that have moved up," Powell said, "they can't simply be a reflection of expected policy moves from us, that if we didn't follow through on them, then the rates would come back down. ... It does not appear that an expectation of higher near-term policy rates is causing the increase in longer-term rates."
The market's overall takeaway from Powell's press conference is that the Fed will keep rates unchanged in December.
"It has become abundantly clear that this Fed's main objective is to continue to fight inflation with the tools at its disposal and rein in the still high-inflationary levels, yet today's statement and press conference suggest that the rate-hike process may now be finished," wrote Rick Rieder, BlackRock's CIO of global fixed income, in a note on Wednesday.
Forecasts published in September that suggested one more rate hike would be coming from the Fed this year see their meaning "decay" over time, Powell said Wednesday. Data from the CME Group as of Wednesday showed investors pricing in a greater than 80% chance the Fed stays put next month.
And moves in financial markets — whether a rally like that seen on Wednesday or the sell-off seen over the last three months — aren't likely to shake the Powell Fed.
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