The phrase "the pen is mightier than the sword" has been used to illustrate the power of the word over action or force. Originally written by Edward Bulwer-Lytton for his play Richelieu, the line seemed to ring true in markets this week. Testimony from the Federal Reserve Chairman appears to have moved markets as much as an actual Fed-initiated interest rate increase could have.

During the testimony to Congress, Chairman Powell indicated the likely need for more interest rate hikes to combat high inflation. Short-term treasury rates initially moved higher on the news while stock prices, broadly, declined.

We know from experience that financial markets often move based on expectations (words), prior to any action (swords) that may occur. We believe the market now expects interest rates to be higher, and for longer. Will Powell’s words preempt the Fed’s need for higher increases this year? Stay tuned. March 23rd, May 3rd, and Mid-June are scheduled Fed meetings where rates are topic du jour.

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