Overview: Federal Reserve officials say the risks of the dual mandate are increasing; U.S. stocks surge possibly due to short covering

The president of the St. Louis Fed said that the risks facing inflation and employment are rising, and the central bank should be prepared to adjust interest rates in either direction based on how the economy evolves. Some major trading teams on Wall Street believe that this round of strength in U.S. stocks is mainly due to short covering, not changes in views about the Iran peace outlook. The Bank of Canada believes that an Iran war should not take precedence over other economic risks.

**　St. Louis Fed president expects current interest rates to remain “appropriate for a time”**

St. Louis Fed president Alberto Musalem said that the risks to both inflation and employment are increasing, and the central bank should be prepared to adjust interest rates in either direction based on the economic outlook.

“Current policy is positioned well to address the risks facing the goal of the dual mandate, and I expect the current policy rate setting to remain appropriate for some time,” Musalem said on Wednesday at the American Enterprise Institute in Washington. “However, if the evidence shows the economy needs a change, I will support adjusting the policy stance.”

**　　Traders say this round of strength in U.S. stocks is mainly due to short covering, not the Iran peace outlook**

Some major trading teams on Wall Street said that before the end of the quarter, market positioning was extremely bearish, which was the main driver of Tuesday’s sharp rebound in U.S. stocks—not because investors’ views on the Iran war changed.

Traders at Goldman Sachs and JPMorgan Chase said the move is mainly a squeeze: stocks suddenly rebounded, more because participants in various markets unwound bearish positions.

JPMorgan Chase Industrials sector sales Paige Hanson wrote: “Investors have been betting almost since the war began that they would quickly find a path to exit, but from a market or global economy perspective, what matters is defining what exactly is the decisive event sufficient to make people reassess risk and lower the probability of a recession. For the stock market and global economic outlook we both care about, how do you define the ‘end’ of this war?”

**　　Federal Reserve Governor Barr: Iran war poses risks to growth and inflation**

Federal Reserve Governor Michael Barr said that the longer the Iran conflict lasts, the greater the risk to U.S. economic growth and inflation.

“ If the situation in the Middle East persists for a long time, it could not only push up inflation, but also weigh on economic growth,” Barr said on Wednesday at an event hosted by the National Fair Housing Alliance.

The Bank of Canada believes that an Iran war should not take precedence over other economic risks.

When the Bank of Canada’s governing council held rates unchanged last month, it spent a considerable amount of time discussing the inflation risks stemming from the Iran war, but officials agreed that “other major economic headwinds should not be ignored.”

In a summary of the March meeting minutes, the Bank of Canada said that the Middle East conflict has driven up oil prices, causing gasoline prices to surge, “adding a clearly new layer of uncertainty” for Canada.

**　Bank of England says AI applications could pose a threat to financial stability; Iran war brings major negative supply shocks**

The Bank of England warned on Wednesday that the use of artificial intelligence by financial institutions could increase rapidly and evolve into a threat to financial stability. It also said that artificial intelligence could trigger shocks in the private credit market and further transmit them to broader areas.

This was the first time the Bank of England issued an update on the matter since the Iran war broke out on February 28. The Bank of England’s Monetary Policy Committee said that the resulting disruptions have brought a “significant negative supply shock” to the global economy, which will “drag down growth, push up inflation, and tighten financial conditions.”

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