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Top economist Mohamed El-Erian, who has been repeatedly warning of inflation being sticky, expressed concern over market reaction to US Fed Jerome Powell's comments on US interest rates.

Powell’s comments affirmed expectations the US Federal Reserve will raise interest rates 50 basis points this month in a departure from a run of four 75 basis point hikes, while indicating that more hikes will be necessary to curb inflation.

Wall Street equities closed sharply higher on Wednesday while U.S. Treasury yields declined and the dollar sank. Stocks in Asia extended gains following a sharp rally on Wall Street.

The investors loosened their purse strings even as Powell cautioned that the inflation is still too high.

Commenting on that, El-Erian tweeted that the the US Federal Reserve Bank is facing a communication challenge indicating that the Fed chair will have to choose his words.

The more the Chair tilts his remarks dovish, the greater the loosening of financial conditions and, potentially, the bigger the risk to meeting the inflation objective," he added.

It is worth noting that as soon as Federal Reserve Chair Jerome Powell indicated a slowdown in the pace of rate hikes, there was a huge gain in Wall Street shares and Asian stock market.

According to Bloomberg, Futures on the S&P 500 rose by 0.3% as of 9:27 a.m on 1 December as per Tokyo time. The S&P 500 climbed 3.1% and Nasdaq 100 futures rose 0.3%. The Nasdaq 100 climbed 4.6%.

The 10-year US Treasuries yield increased by one basis points and reached 3.61%. However, Australia’s 10-year yield declined three basis points to 3.50%.

There was a hike in Japanese equities as well. Australian shares closed at higher points for a second straight session. They were joined by US and Hong Kong futures in terms of showing similar trend. Positive market sentiment also led to the surge in Tech stocks taking them to a nearly three weeks high for the S&P 500. Foreign currencies like Euro, Japanese yen and Yuan also showed improvement against dollar in the market.

 

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