Fed Chair Powell Signals Faster, Higher Rate Hikes Ahead
By Fed Chair Jerome Powell has indicated that the Federal Reserve may have to raise interest rates higher and faster than previously anticipated due to persistent inflation. In his semi-annual testimony before the Senate Banking Committee, Powell said that if economic data continues to come in strong, the Fed would be prepared to increase the pace of rate hikes. The odds for a 50-basis point hike at the March Fed meeting are now 63%, according to the CME FedWatch Tool.[0]
The futures market currently prices a 50 basis-point hike to the federal funds rate as the most likely outcome following the Fed’s March 22 meeting.[1] Powell warned that inflation has been moderating in recent months, but the process of getting inflation back down to the Fed's 2% goal still has “a long way to go” and will be “bumpy.”[2]
Powell added that the Fed could not afford to let up its fight against inflation, which he said would bring much deeper pain if left alone.[3] He warned that a recession caused by fighting inflation now would pale in comparison to one caused by hyperinflation in the future.[4]
The Federal Reserve's rate-setting committee is scheduled to convene later this month.[3] Powell will be tasked with convincing lawmakers that the central bank is capable of bringing down inflation without crashing the US economy in its wake.[5]
Meanwhile, Meta Platforms (META) is up more than +1% in pre-market trading after a Bloomberg News report said the company is planning a fresh round of layoffs and will cut thousands of employees as soon as this week.[6] Dick’s Sporting Goods is up more than +9% after reporting better-than-expected Q4 net sales, and Dish Network is up more than +6% on signs of insider buying after an SEC filing showed board member Defranco bought $15.7 million worth of stock on March 2.[6]
The market will be watching closely to see if Powell will join in and signal that more rate hikes are on their way. The Federal Reserve's base interest rate has been raised to a range of 4.5 to 4.75 percent, with the overnight bank borrowing rate now set at 4.57 percent.[7] Powell’s comments will be key in determining how high and quickly the U.S. central bank is willing to hike rates.[8]
0. “Dow Falls Nearly 600 Points As Fed Chair Powell Warns More Severe Rate Hikes On Deck” Forbes, 7 Mar. 2023, https://www.forbes.com/sites/dereksaul/2023/03/07/dow-falls-500-points-as-fed-chair-powell-warns-more-severe-rate-hikes-on-deck/
1. “Bond-market recession gauge plunges to triple digits below zero on way to fresh four-decade milestone” MarketWatch, 7 Mar. 2023, https://www.marketwatch.com/story/bond-market-recession-gauge-plunges-to-triple-digits-below-zero-on-way-to-fresh-four-decade-milestone-41448336
2. “Powell: ‘A Long Way to Go' on Taming Inflation” U.S. News & World Report, 7 Mar. 2023, https://www.usnews.com/news/economy/articles/2023-03-07/powell-a-long-way-to-go-on-taming-inflation
3. “Fed may need more aggressive interest rate hikes, Powell says” The Washington Post, 7 Mar. 2023, https://www.washingtonpost.com/business/2023/03/07/fed-powell-hill
4. “Powell faces Senate heat as Fed ramps up inflation fight” The Hill, 7 Mar. 2023, https://thehill.com/business/3888288-powell-faces-senate-heat-as-fed-ramps-up-inflation-fight
5. “What to watch as Fed Chair Powell testifies before Congress” CNN, 7 Mar. 2023, https://www.cnn.com/2023/03/07/investing/premarket-stocks-trading/index.html
6. “Stocks Slide After the Fed Chairman Powell Warns Rates Will Likely Be Higher” Barchart, 7 Mar. 2023, https://www.barchart.com/story/news/14844261/stocks-slide-after-the-fed-chairman-powell-warns-rates-will-likely-be-higher
7. “US has ‘long way to go’ to reduce inflation, Fed chair tells Congress” The Guardian, 7 Mar. 2023, https://www.theguardian.com/business/2023/mar/07/inflation-fed-chair-jerome-powell-congress
8. “US interest rates could go higher than expected” BBC, 7 Mar. 2023, https://www.bbc.com/news/business-64881469
