Powell Warns Against Inflation: Markets React to Higher Interest Rates, Fed Meeting Ahead
By Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee on Tuesday and warned that the fight against inflation is far from over.[0] The markets responded negatively, with the Dow Jones Industrial Average declining by 575 points, or 1.7%.[1]
Powell said that incoming data, as well as upward revisions to prior data, “suggests that inflationary pressures are running higher than expected” by Fed officials when they met at the start of February.[2] As a result, “the ultimate level of interest rates is likely to be higher than previously anticipated.” He also noted that economic data like inflation and employment numbers have indicated that the rate of inflation, while declining, could remain relatively elevated for some time.[3]
In response, the Fed has raised its benchmark rate to more than 4.5%, the highest rate since 2007. The Federal Reserve's next meeting, where they will make any announcements regarding interest rate increases, will occur on the 21st and 22nd of March. Jerome Powell cautioned that the battle against inflation is far from over, which caused stock markets to dip.[4]
Powell also acknowledged that recent data has come in “stronger than expected,” which implies the ultimate level of rates “is likely to be higher than previously anticipated.” It is likely that the Federal Reserve will increase rates more than the 5.1% that was predicted in their December projections.[5]
The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all dropped on Tuesday after Powell’s remarks.[3] Meanwhile, the yield on the 10-year Treasury note edged up one basis point to 3.995%, while the 2-year yield leapt 12 basis points to 5.01%.[6]
The Fed’s rate-setting committee meets later this month to consider any policy changes, including their next rate hike. Powell fired back to Senator Elizabeth Warren’s (D-MA) questioning, saying that the Fed would not be doing its job if it gave up the fight now. He questioned, “Would working people be better off if we simply quit our jobs and inflation stays at around 5-6%?”[7]
Investors will be keenly observing as they look for indications of potential rate increases.[8] The Bureau of Labor Statistics will release the Job Openings and Labor Turnover Survey, or JOLTS, at 10 a.m.[9] ET today.[10] Economists predict this number to be 10.[11]
0. “Fed Chair Powell in congressional hot seat as sticky inflation squeezes Americans” Fox Business, 7 Mar. 2023, https://www.foxbusiness.com/economy/fed-chair-powell-congressional-hot-seat-sticky-inflation-squeezes-americans
1. “Full Steam Ahead for Jerome Powell – WSJ” The Wall Street Journal, 7 Mar. 2023, https://www.wsj.com/articles/jerome-powell-capitol-hill-federal-reserve-inflation-markets-5da4d66
2. “Fed Chair Powell Stokes Fear Of Half-Point Rate Hike; S&P 500 Falls” Investor's Business Daily, 7 Mar. 2023, https://www.investors.com/news/economy/fed-chair-powell-stokes-fear-of-half-point-rate-hike-sp-500-falls/
3. “Stock Market Today: Dow Plunges After Powell Remarks” Barron's, 8 Mar. 2023, https://www.barrons.com/livecoverage/stock-market-today-030723
4. “US debt default could cause ‘longstanding harm,' Fed Chair Jerome Powell says” ABC News, 7 Mar. 2023, https://abcnews.go.com/Politics/us-debt-default-cause-longstanding-harm-fed-chair/story?id=97665681
5. “Why the next slate of economic data is so important” Axios, 8 Mar. 2023, https://www.axios.com/2023/03/07/economic-data-federal-reserve
6. “Gold price a bit weaker as bulls work to stabilize market” Kitco NEWS, 8 Mar. 2023, https://www.kitco.com/news/2023-03-08/Gold-price-a-bit-weaker-as-bulls-work-to-stabilize-market.html
7. “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
8. “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
9. “Jobs Data, GE Investor Day, Oracle Earnings, and More to Watch This Week” Barron's, 6 Mar. 2023, https://www.barrons.com/articles/stocks-to-watch-this-week-oracle-ge-d0ddca8
10. “Stock Market Today: Blue Chip Stocks Lead Market Lower After Powell Speech” Kiplinger's Personal Finance, 7 Mar. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-030723-blue-chip-stocks-lead-market-lower-after-powell-speech
11. “Stocks Little Changed Before The Open As Powell Comments Spark Fears of Higher Interest Rates” Barchart, 8 Mar. 2023, https://www.barchart.com/story/news/14876493/stocks-little-changed-before-the-open-as-powell-comments-spark-fears-of-higher-interest-rates
