Stock Futures Dive After Fed’s Poole Says Fed’s Primary Objective Should Be Inflation
St. Louis Fed president Bill Poole expressed his belief that controlling price pressures should be the primary objective of the Fed. Poole also warned of “substantial problems” in Freddie and Fannie’s financial strength. Chicago Fed president Charles Evans addressed the potential for excesses as a result policy easing and said a swift removal of rate reductions is important when they are no longer necessary.
DOW breached session lows, dropping 2% to 12,335 and S&P futures fell 1.95% to 1,338. Treasuries extended their gains with the 30yr yield falling to 4.41%, the 10yr yield falling to 3.54% and the 2yr yield falling to 1.68%. The short end of the curve was roughly unchanged except for the 6month bill whose yield is down 10 bps to 1.83%. Fed Fund futures now show a 58% chance of a 75 bps cut mid-March despite the hawkish comments from Poole and Evans.
The USD showed little reaction to the speeches. EUR/USD and Cable are flat on the day. USD/JPY is down 1.3% and USD/CHF is down 0.92%