Powell Calms Bond Yields, but Rising Oil Drags Crypto and Stocks Lower

• Federal Reserve Chairman Jerome Powell signaled that the central bank is currently overlooking short-term oil price volatility to focus on stable inflation expectations.
• U.S. Treasury yields retreated as market participants lowered their expectations for imminent interest rate hikes.
• Despite the positive news for bonds, surging oil prices pressured risk assets, causing Bitcoin and major stock indices to erase early gains.

Powell Prioritizes Inflation Stability Over Oil Shocks

During an appearance at Harvard University, Federal Reserve Chairman Jerome Powell provided much-needed clarity regarding the central bank's stance on energy market volatility. Powell emphasized that the Fed is looking past temporary spikes in oil prices, noting that long-term inflation expectations remain "well anchored."

Addressing the potential for policy shifts, Powell stated, "We will eventually maybe face the question of what to do here. We’re not really facing it yet because we don’t know what the economic effects will be." This cautious approach suggests the Fed is not yet ready to pivot based solely on energy costs, preferring to wait for more definitive data on the broader economic impact.

Bond Yields Fall as Rate Hike Fears Recede

The chairman's comments had an immediate calming effect on the fixed-income market, which had recently begun bracing for potential rate increases. The yield on the 10-year U.S. Treasury note dropped nine basis points to 4.35%, while the 2-year yield declined eight basis points to 3.83%.

According to the CME FedWatch tool, the probability of at least one interest rate hike occurring in 2026 saw a dramatic shift. The odds plummeted to just 5% on Monday, down significantly from the 25% recorded on Friday. This repricing reflects a growing consensus that the Fed will maintain a patient stance despite recent market jitters.

Energy Surge Weighs on Stocks and Cryptocurrency

While the bond market found relief, the broader investment landscape remained under pressure due to a sharp rise in energy costs. WTI crude oil jumped 5.3% on Monday, reaching nearly $105 per barrel. This marks the first time oil has closed above the $100 threshold since 2022, a level it has struggled to maintain despite geopolitical tensions involving Iran.

The rising cost of energy dampened investor appetite for riskier assets. The Nasdaq fell 0.75%, and the S&P 500 ended the session down 0.4%. The cryptocurrency market followed a similar trajectory; Bitcoin (BTC) gave up its intraday momentum to trade back at the $66,500 level, leaving its price essentially unchanged over the last 24-hour period.