U.S. Treasury yields tested fresh 14-month highs Thursday as investors dumped inflation-sensitive assets in the wake of the Federal Reserve's bullish growth outlook and easy-money pledge that investors think will stoke further consumer price increases.
The Fed forecast a roaring economic recovery this year, with GDP growth of around 6.5% -- the fastest in nearly four decades -- but appeared sanguine with respect to an increase in inflation that may come with it.
In fact, Chairman Jerome Powell insisted that while the post-pandemic rebound will be solid, the lingering effects on the labor market will likely mean prices rises will be temporary, and that the economy will need record-low rates, and continued liquidity support, for at least another two years.
The Fed's tolerance for faster inflation -- which could accelerate to 2.2% this year as the base-effects from higher oil and commodity prices factor into CPI readings throughout the spring and summer months -- alongside red-hot growth triggered a predictable reaction from the bond market, with benchmark 10-year Treasury yields rising to a January 2020 high of 1.75% in early Thursday trading.
The move puts the yield gap between 2-year and 10-year notes at around 1.6%, the steepest since 2015, and a normally unambiguous indication of near-term economic bullishness.
Long bond yields were also on the rise, with 30-year Treasuries marked at 2.51%, the highest since August of 2019.
But it's also put downward pressure on rate-sensitive tech stocks, with futures contracts tied to the Nasdaq Composite indicating a 235 point opening bell decline, lead by 1.3% slide for Apple (AAPL) - Get Report and a 2.3% pullback for Tesla (TSLA) - Get Report. Microsoft MSFT, Amazon (AMZN) - Get Report, Alphabet (GOOGL) - Get Report, Facebook (FB) - Get Report were also in the red in pre-market trading.
TheStreet's founder, Jim Cramer, however, argues that Powell isn't some kind of inflation-denying Pollyanna, but rather a talented central banker that is willing to live with "let the economy continue to gain strength so that everyone has a chance to do well, not just the rich white people, even it is means that the latter does really well."
"The collateral damage of trying to give the poor working and non working classes some opportunity is that the rich do get richer," Cramer said. "That's a high-quality Powell problem."
Will it topple stocks, which hit all-time highest yesterday after the S&P 500 closed within touching distance of the mythical 4,000 point mark last night?
Cramer isn't convinced.
Old-school money mangers may follow their dog-eared playbooks and dump stocks as bond yields rise, but stock pickers and the new generation of retail investors have "made out like bandits" buying the dips in these markets.
And could do so again if the hold their nerve.