In the last week of February, the rise in bond interest rates due to rising inflation expectations in the United States, subdued the risk appetite in the markets, causing a strong sell-off in asset prices.

But statements by Fed Chairman Jerome Powell and messages from vaccine manufacturers supported the optimism brought by the $ 1.9 trillion stimulus package and led to a recovery in prices.
 

Powell's Speech

Fed Chairman Jerome Powell told the US Congress that it would take a long time for the economy to recover due to the Coronavirus outbreak, saying that increases in prices would not support long-term inflation rates.

Powell noted that decisions taken by the Fed in order to minimize the impact of the pandemic on the economy support the economic recovery, and noted that high unemployment is the reason why the labor market is far from full employment.

"This is not necessarily going to lead to inflation, because inflation is a process that repeats itself every year rather than a one-time increase," Powell said.

Finally, the FED Chair noted that they predict that inflation will rise in line with the accumulated demand that may arise from the loosening of measures taken as part of the base effect and the fight against the pandemic, but they think that it may take more than 3 years to reach the 2 percent target.

Covid vaccine optimism

There was an important development about the vaccines yesterday. In the United States, the U.S. Food and Drug Administration (FDA) stated that the single-shot jab of Johnson&Johnson is safe, paving the way for it to receive emergency authorisation.

In a study conducted by the Clalit Research Institute and Ben-Gurion University of the Negev in Israel and led by Harvard University in the United States, BioNTech and Pfizer's coronavirus vaccines were 94 percent effective, and the experts concluded that the vaccines were effective worldwide.

Another major development came from Moderna, a US pharmaceutical company. Moderna said it was working with U.S. government scientists on an additional vaccine against the new strain of coronavirus. Moderna also announced that it had increased its vaccine production target by 100 million doses for 2021.

Although the rise of risk-free US bonds in global markets due to inflation expectations led to a decline in  risky instruments, Powell's indication that this rise will not be a long-term rise and that downward risks continue significantly recovered the risk perception in the financial markets. New results in vaccines developed against the Coronavirus outbreak contributed to this recovery. In other words, while the current optimism in the United States was preserved by Powell's statement and good news about many vaccines and vaccine manufacturers, the fall in asset prices is unlikely to become a permanent one.