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Fed Chair Jay Powell. Photo: Photo: Mark Wilson/Getty Images

Top Fed officials look to be setting the market up for interest rate cuts, just months after reversing course from planned rate increases.

The big picture: The theme of quantitative tightening is long gone and while U.S. data continues to hold firm, Fed Chairman Jay Powell and other Fed heavyweights are beginning to shift the narrative to worsening developments in other countries.

What's happening: Powell got things started in a little-noticed exchange during the Q&A session following the Fed's most recent policy meeting when he pointed out slowing in Europe and China.

Prominent Fed members have doubled down on those comments in the weeks since.

What they're saying: Fed Vice Chair Richard Clarida said last week in a speech titled "Global Shocks and the U.S. Economy" that even though the Fed's mandate is domestic, it now will keep a close eye on a series of "prominent" global growth risks and may need to pay closer attention.

  • "In today's world, U.S. policy makers can hardly ignore these risks," Clarida said. "The U.S. economy's increasing integration with the rest of the world has made it more exposed to foreign shocks."

More importantly, Clarida pointed to Fed rate cuts in 1998 he said helped avert a larger global financial meltdown. "In these episodes, accommodative policy responses in the United States helped ward off actual contractions of U.S. activity."

Clarida's comments followed remarks from Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren that pointed to worrisome global developments that could push the Fed's hand on cutting rates, with Evans also spotlighting 1998.

The bottom line: Analysts have argued about whether the bond market or the stock market is right, as their prices have been atypically in sync for months. The answer could very well be both.

  • Fed rate cuts would likely be a major boon for equity prices and also boost bond prices, driving down yields. This is just what both markets seem to be pricing in.

Go deeper

Off the Rails

Episode 5: The secret CIA plan

Photo illustration: Aïda Amer, Sarah Grillo/Axios. Photo: Zach Gibson/Getty Images

Beginning on election night 2020 and continuing through his final days in office, Donald Trump unraveled and dragged America with him, to the point that his followers sacked the U.S. Capitol with two weeks left in his term. This Axios series takes you inside the collapse of a president.

Episode 5: Trump vs. Gina — The president becomes increasingly rash and devises a plan to tamper with the nation's intelligence command.

In his final weeks in office, after losing the election to Joe Biden, President Donald Trump embarked on a vengeful exit strategy that included a hasty and ill-thought-out plan to jam up CIA Director Gina Haspel by firing her top deputy and replacing him with a protege of Republican Congressman Devin Nunes.

Updated 2 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Annelise Capossela/Axios

  1. Health: CDC director defends agency's response to pandemic — CDC warns highly transmissible coronavirus variant could become dominant in U.S. in March.
  2. Politics: Empire State Building among hundreds to light up in Biden inauguration coronavirus tribute.
  3. Vaccine: Fauci: 100 million doses in 100 days is "absolutely" doable.
  4. Economy: Unemployment filings explode again.
  5. Tech: Kids' screen time sees a big increase.

Biden Cabinet confirmation schedule: When to watch hearings

Joe Biden and Kamala Harris on Jan. 16 in Wilmington, Delaware. Photo: Angela Weiss/AFP via Getty Images

The first hearings for President-elect Joe Biden's Cabinet nominations begin on Tuesday, with testimony from his picks to lead the departments of State, Homeland and Defense.

Why it matters: It's been a slow start for a process that usually takes place days or weeks earlier for incoming presidents. The first slate of nominees will appear on Tuesday before a Republican-controlled Senate, but that will change once the new Democratic senators-elect from Georgia are sworn in.

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