Previously, surging oil prices had fueled inflation concerns, making further Fed rate hikes almost a consensus view. U.S. Treasuries experienced their worst selloff in 17 months. However, Powell’s speech struck at the most fragile point of market sentiment, forcing traders to reprice expectations.

What Did Powell Say?

Powell’s key message can be summarized in three points, each directly addressing market concerns:

1. Temporarily look through war-driven shocks:
Powell stated that the Fed’s standard approach to supply shocks such as oil price spikes is to “look through them,” while closely monitoring inflation expectations. He acknowledged that the economic impact of the conflict remains uncertain, and therefore current policy is appropriately positioned to allow for a wait-and-see approach.

2. Balance both sides of risk:
He highlighted the dual risks facing the economy — downside risks to the labor market (which would argue for lower rates) and upside risks to inflation (which would argue against easing). This balanced stance effectively eased fears that the Fed is rushing toward further rate hikes.

3. Inflation expectations remain anchored:
Powell emphasized that although inflation has remained above the 2% target for an extended period, long-term inflation expectations still appear to be under control. This is the key reason the Fed feels comfortable maintaining a patient stance.

Short-term Treasury yields fell sharply, with the two-year yield dropping by more than 10 basis points intraday and ultimately settling around 3.82%.

From Inflation Fears to Recession Concerns

This was more than just a revision of rate expectations — it marked a shift in the market’s core narrative.

Previously, the logic was straightforward: rising oil prices → higher inflation expectations → increased rate hike expectations → higher bond yields.

Powell’s remarks changed that framework. Markets began to recognize that higher oil prices could also suppress consumption and weaken economic growth.

As John Briggs, U.S. rates strategist at Natixis, noted:
“Before last Friday, investors were focused on the inflationary impact of rising oil prices. Since then, sentiment has shifted — despite higher oil prices, the focus has turned to economic growth.”

This concern is not unfounded. Goldman Sachs estimates that the probability of a U.S. recession within the next year has risen to around 30%.

As markets begin pricing in recession risks, bonds regain their appeal as safe-haven assets, driving yields lower. At the same time, gold — which is sensitive to interest rate expectations — gains breathing room.

For gold and silver, the Fed’s willingness to remain patient has temporarily lifted the burden of imminent rate hikes. As long as concerns about economic slowdown continue to build, precious metals are likely to find ongoing support.

The next key catalyst will be the market’s reaction to the upcoming U.S. nonfarm payrolls report in April. If employment data shows further weakness, expectations for rate cuts may no longer remain a low-probability scenario.

As Powell himself noted, “we do not yet know what the economic impact will be.”
And that very uncertainty may be the strongest support for gold.