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Why the market is worried about Powell’s stance on inflation

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The bond market sold off on Thursday when Federal Reserve Chairman Jerome Powell expressed little worry about inflation and provided no indication of policy changes ahead.

In an exchange with the Wall Street Journal, the central bank leader acknowledged that an economy recuperating from the depths of the Covid-19 pandemic could see some price pressures ahead.

But he also dismissed them as mostly “base effects.” In other words, prices in the next couple of months will look high, but only when compared to last year, just as the pandemic was beginning and inflation pressures fell through the floor.

In addition to indications of full employment, Powell said, “We’d want to see inflation sustainably above 2% and we’d want to be on track for inflation to run sustainably above 2%.”

“There’s just a lot of ground to cover before we get to that,” he added.

Bond markets sold off during his comments, sending yields higher, as prices and yields move in opposite directions. Stocks also tumbled, sending the Dow industrials down more than 600 points.

Inflation is kryptonite for the bond market for a few reasons.

First, inflation erodes the capital of bonds as rising yields struggle, and generally fail, to keep up with price pressures. Rising yields mean falling prices.

Further, if inflation rises, that means future interest payments one receives for holding the bond are worth less.

Powell said the recent leap in yields was “notable and caught my eye,” but didn’t sound any alarm. Instead, he said he would be concerned only by “disorderly conditions” in the market, which he did not indicate to be case even though yields are at the highest levels since before the pandemic began.

Even if inflation does rise, Powell and other Fed officials say they are content to let it run above their 2% target until the jobs market shows a full and inclusive recovery along income, gender and racial lines.

Wall Street was looking for some indication of policy tweaks from the Fed. Rather than seeking rate hikes, some economists and investors are looking for the Fed to change the composition of its monthly asset purchases.

One option would be to sell short-term bills and buy longer-dated notes in an effort to raise yields on the short end and lower them further out in duration to flatten the yield curve, in a process known as Operation Twist.

Investors worry that the Fed may again have to play catch-up by hiking rates when inflation does occur. Stock market investors also don’t like rising interest rates as they make it more expensive for companies to borrow and endanger debt-laden companies that have become dependent on low rates.

“With respect to financial conditions, it will be up to the Fed on whether they tighten further. The more dovish they get in the face of market expectations of higher inflation, the more financial tightening we’ll see,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Boockvar added that Fed officials “have put themselves in a tough situation” and must hope that inflation does not hit the 2% target before employment also reaches their goal.

“If it does, they have a problem because they will be afraid to confront it with higher rates if they remain so focused on employment,” he said.

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CDC panel postpones pause decision

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Pharmacist Madeline Acquilano inoculates a teacher with the Johnson & Johnson Covid-19 Vaccine at Hartford Hospital in Hartford, Connecticut, on March 3, 2021.

Joseph Prezioso | AFP | Getty Images

A Centers for Disease Control and Prevention panel on Wednesday decided to postpone a decision on Johnson & Johnson’s Covid-19 vaccine after six women developed a rare, but potentially life-threatening, blood-clotting disorder that left one dead and critical condition.

The CDC’s Advisory Committee on Immunization Practices met a day after the Food and Drug Administration asked states to temporarily halt using J&J’s vaccine “out of an abundance of caution.” The panel voted unanimously to reconvene in a week where it will decide what it will recommend to the CDC on J&J’s vaccine. The postponement means the pause on J&J’s vaccine will remain in effect.

The committee debated whether to and how long they wanted to continue the pause on J&J’s vaccine while the CDC investigates the cause of the blood clotting. One committee member recommended a month-long hold on restarting immunizations, while other members recommended a few weeks. Some members asked whether they could hold off on voting until they had more time to digest the data.

One of the options the panel considered was whether to recommend limiting the vaccine’s use based on age or other risk factors.

Dr. Grace Lee, a member of the committee, said she worried a vote to pause the use of the vaccine indefinitely would send the wrong message to the public. She and others added it could make it appear that something is fundamentally wrong with the vaccine.

“That is not the decision I think makes the most sense,” she said.

Sandra Fryhofer of the American Medical Association was in favor of a pause. She said there is enough supply of the Moderna and Pfizer vaccines to continue rapid vaccinations across the U.S.

“I know there are many patients that have not been able to get vaccinated that need to get vaccinated, but we want to make sure these vaccines are safe,” she said,

Dr. Nirav Shah, the director for the CDC in Maine, said the committee’s vote to postpone a decision on the use of the vaccine is “tantamount to making a decision.”

“Any extension of the pause will invariably result in the fact that the most vulnerable individuals in the United States who were prime candidates for the J&J vaccine will remain vulnerable. The most at risk, will remain at risk.”

The CDC and FDA advised states to reschedule J&J vaccine appointments after six women developed cerebral venous sinus thrombosis, or CVST, within about two weeks of receiving the shot, U.S. health officials told reporters on Tuesday. CVST is a rare form of a stroke that happens when a blood clot forms in the brain’s venous sinuses. It can eventually leak blood into the brain tissues and cause a hemorrhage.

“CVST is rare, but clinically serious, and can result in substantial morbidity and mortality,” Dr. Tom Shimabukuro, a CDC official, told the committee. He said the CVST cases appeared to be three times greater in the J&J vaccine group than among among women aged 20 to 50 years old with similar backgrounds.

Within hours of the FDA’s warning early Tuesday, more than a dozen states as well as some national pharmacies  halted inoculations with J&J’s vaccine, some replacing scheduled appointments with either the Pfizer or Moderna vaccine.

U.S. health officials had said the pause on the use of the vaccine might only last a matter of days, depending on what they learn in their investigation of the cases. White House chief medical advisor Dr. Anthony Fauci said Tuesday the pause on the use of the vaccine would give U.S. health regulators the time they need to thoroughly investigate the cases and “find some common denominators among the women who were involved.”

A 25-year old man developed CVST along with a hemorrhage during the clinical trial who was hospitalized but recovered. All of the six cases that occurred after the clinical trial were found in white women, Shimabukuro said, noting that the median time to symptom onset was eight days. Three were described as obese, one had hyperthyroidism, one had asthma and one had hypertension, he said.

Five of the six patients initially developed headaches and one had back pain and bruising before more serious other symptoms set in, he said. One of the women has died. Three of the patients remain hospitalized, while two have been discharged, he said.

“These are significant blood clots that are causing these problems,” he said.

Dr. Aaran Maree, chief medical officer for J&J’s vaccine division Janssen Pharmaceutical Cos., told the committee that none of the women were on birth control, which was theorized as a possible link to the blood clotting. They also all tested negative for Covid-19.

One of the two patients who recovered was a 26-year-old woman who was described as “overweight but active,” wasn’t on any medication and had no history of clotting disorder.

She was admitted to the hospital with a severe headache a week after receiving the J&J vaccine and was discharged but returned to the hospital a week later with abdominal pain and a rapid heart rate, he said. Tests revealed she developed thrombocytopenia and CVST.

One 48-year-old woman with an “unremarkable past medical history” was admitted to the hospital after three days of malaise and abdominal pain. She developed severe thrombocytopenia and CVST that progressed with hemorrhagic stroke despite treatment with the blood thinner heparin. She received the J&J vaccine two weeks prior to symptom onset and remains critically ill according to the last report.

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Stock futures inch higher after S&P 500 retreats from record

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Futures contracts tied to the major U.S. stock indexes ticked higher at the start of the overnight session Wednesday evening after the S&P 500 retreated from record levels during the regular session.

Contracts tied to the Dow added 34 points, while those pegged to the S&P 500 rose about 0.1%. Nasdaq 100 futures advanced about 0.2%.

The moves in the overnight session came after the S&P 500 slipped from record levels during Wednesday’s regular session as pressure on tech offset optimism sparked by the first round of major corporate earnings that largely exceeded expectations.

The broad equity benchmark dipped 0.4% after hitting a fresh record high earlier in the session. The Dow Jones Industrial Average gained just 53 points.

The Nasdaq Composite lost about 1% as Tesla fell nearly 4%, Netflix and Facebook dropped more than 2% each, and Amazon, Microsoft and Apple all dipped at least 1%.

With the first-quarter earnings season now underway, investors will on Thursday pore over financial results from snack company PepsiCo, asset manager BlackRock and both Citigroup and Bank of America.

The season began in earnest with bank results on Wednesday, when Goldman Sachs climb more than 2% after blowing past analysts’ expectations with record first-quarter net profits and revenues on strong performance from the firm’s equities trading and investment banking units.

JPMorgan Chase also topped forecasts on the top and bottom lines, helped by a $5.2 billion benefit from releasing money it had previously set aside for loan losses. Bank stocks have climbed across the board this year, with the S&P 500 financials sector up nearly 20% compared to the S&P 500’s 9.8%.

Investors will on Thursday review the Labor Department’s latest report on the number of Americans filing first-time claims for unemployment insurance. Economists polled by Dow Jones expect the government to report that another 710,000 filed claims for the first time during the week ended April 10.

March retail sales data, also due Thursday morning, are expected show a robust uptick in consumer spending, with some economists seeing a gain of 10% or more thanks to the arrival of the $1,400 stimulus checks. The consensus forecast is more modest growth of 6.1%.

On Tuesday, the Food and Drug Administration called for a pause in administering J&J’s Covid-19 vaccine after six people in the U.S. developed a rare disorder involving blood clots. The announcement triggered a sell-off in reopening plays earlier in the week, but is not expected to have a material impact on the pace of the U.S. vaccine rollout.

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Here's who just got rich from the Coinbase debut

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New York’s Union Square Ventures first invested in Coinbase at 20 cents a share in 2013. Eight years later, the stock debuted on the Nasdaq at $381.

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