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Today’s Fed meeting may be remembered more as the end of the Yellen era than any policy nuances, but recent market ructions may lend a nervous edge to the welcome party for incoming chief Jerome Powell a nervous edge and cause more problems for the dollar.
Analysts expect no policy change today so and will focus on the statement to set up a widely expected March hike. Markets view Powell as Yellen 2.0, maintaining Yellen’s gradual approach to tightening with a lighter touch on regulation. But recent market activity overshadows the start of his tenure, with rising volatility across asset classes hinting at questions about the supposed central bank put that has long comforted investors. Rising global yields have given markets a wakeup call, suggesting the incoming Fed chief might not have the luxury of Yellen’s measured approach to tightening, particularly if the falling dollar and fiscal expansion spur inflation. With the Fed safety net diminishing as it reduces its balance sheet, and UST issuance possibly increasing to fund fiscal stimulus, a less predictable Fed may weigh on the already beaten-down dollar.