Introduction
The article under consideration entitled “Jerome Powell Knows a Market Tantrum. This Isn’t Close” is related to macroeconomics and was published on February 23, 2021. In this article, Chappatta (2021) dwells upon the actions of the Federal Reserve and the situation in the bond market. It is stated that although certain challenges exist, the situation is manageable, and the Fed will be able to address all the issues that may arise.
Summary of Article
The article is concerned with people’s cautions regarding a new tantrum and potential burst of the growing bubble in the bond market. Chappatta (2021) states that the Federal Reserve has had several major challenges during the past decade, which led to lowering interest rates. The expansionary monetary policy used to stabilize the market during that period is also mentioned. It is reported that the testimony of the Chair of the Federal Reserve to the Senate Banking Committee raised a set of questions regarding the future of the financial security of the country. Chappatta (2021) adds that the decline of Treasury yields is rather apparent, which makes investors and companies rather nervous. Due to Covid-19, the yield rate was as low as 1.32%, while it is 1.34% at present (Chappatta, 2021). At that, the pace at which the decline occurs is quite alarming.
It is believed that there is no need to raise the federal funds rate as the situation is still controllable. Nevertheless, this decision can be made if inflation has reached 2% and unemployment rates have increased to their maximum defined by the central bank. Chappatta (2021) also argues that some strategies associated with the contractionary monetary policy may be needed to reduce the supply of money to maintain the necessary validity. It is concluded that the bond yields are slowly returning to normal rates, but this trend can be short-term.
Discussion
It is possible to assume that the market is still stable as the decline is not critical. The decline is less significant than the decrease of the previous year, but the pace at which the rates are turning back to normal is not promising. The global economy is experiencing a major meltdown while financial markets display certain growth. The dramatic fall of some bonds (such as Bitcoin or Tesla) and the increase in other rates show that speculative excess can become a serious issue. All stakeholders agree that the bubble is growing and it can burst at any moment.
The lack of stability in the bond market and further speculative activities may lead to another financial crisis. This time, the crisis will have detrimental effects on the global economy and economies of each country due to the fact that economies are still struggling with the aftermaths of the post-Covid-19 policies. Hence, it is critical to make sure that the bubble will reduce and the financial market will be stabilized, which will have a positive impact on the U.S. economy.
Graphical Analysis
Figure 1 represents the fluctuation of Treasury yield rates during the past decade. The changes in the rates show the overall situation in the market and the two major challenges that took place in 2013 and 2018 when the rates went down. Each time the yield rate was steadily growing during the years after the financial constraints, but the recent pandemic-related crisis is yet to be overcome.
Consequences
The author is rather too optimistic about the situation in the financial market. Perhaps, such views are circulating to avoid bank runs that can occur if people understand that the financial system of the country is already under considerable pressure. The outcome of the burst of the growing bulb will be felt by all people and companies as inflation will increase considerably while companies (and banks) will be unable to access loans to run their business. A new economic crisis can start unless the Federal Reserve implements urgent measures.
Reference
Chappatta, B. (2021). Jerome Powell knows a market tantrum. This isn’t close. Bloomberg. Web.