The U.S. Fed Has Stamped All Over Volatility

The U.S. Federal Reserve must be rather pleased with how it has contained the financial fallout from the pandemic. The S&P 500 index turned positive for the year this week and the Nasdaq reached a new high. The world is no longer clamoring for the dollar as a safe haven, and Treasury bond yields and corporate credit spreads are substantially lower than they were at the start of the Covid-19 crisis.

For Fed Chairman Jay Powell, dampening down volatility in the financial markets was the key to bringing things back under control. Only by taming the wild swings of March, when investors kept lurching from hope to despair, was it possible to tempt people back into risk assets such as equities and corporate bonds. The action by the central bank means we’ve just been through the shortest bear market in history.