Powell Warns of Bumpy Ride Ahead as Fed Eyes Interest Rate Hikes
By Federal Reserve Chairman Jerome Powell said on Tuesday that the strong job market in the US underscored the need for the Fed to continue to raise interest rates in order to contain inflation and ensure long-term economic stability.[0] He also warned that the process of bringing inflation down to the central bank’s 2% target may take some time and be bumpy.
Powell was speaking during a question-and-answer session with David Rubenstein of the Economic Club of Washington, D.C. He noted that the US added 517,000 new jobs in January, far higher than expected and a sign of the continuing strength of the jobs market.[1]
“Our message [at the last meeting] was this process is likely to take quite a bit of time.[2] It's not going to be smooth,[4] he said. [4]It's probably going to be bumpy, and we think that we're going to need to do further rate increases, as we said, and we think that we will need to hold policy at a restrictive level for a period of time.[3][4]
The central bank had raised its benchmark interest rate a quarter percentage point last week, its eighth consecutive rate increase as the central bank fights to tame inflation.[1] On Tuesday, the Federal Reserve Watch (FedWatch) tool from the CME Group saw an increase in the probability that interest rates will be raised by 50 basis points from 3% to 9%, with a 91% chance that the next increase will be 0.25%.[4]
Neel Kashkari, President of the Minneapolis Federal Reserve, expressed to Bloomberg News that the powerful jobs report proved that the Federal Reserve's task is far from complete.[1] He maintained his opinion that interest rates should reach approximately 5.4 percent.[1]
Powell’s comments came as the markets reacted to earnings from companies including Uber and Vertex, while the S&P 500 (^GSPC) declined 1%, while the Dow Jones Industrial Average (^DJ) edged down roughly 175 points, or 0.5%. The Nasdaq Composite (^IXIC), which focuses heavily on technology, dropped 1.4%.[5]
Ultimately, the Fed chair’s message was one of caution, as he warned that the disinflationary process will likely take some time and be bumpy. He also acknowledged that if economic data continues to come in hot, then “we have to do more and raise rates more than is priced in.[4]
0. “Powell Says Further Rate Hikes Needed Amid ‘Strong' Labor Market” Bloomberg, 7 Feb. 2023, https://www.bloomberg.com/news/articles/2023-02-07/powell-says-further-rate-hikes-needed-amid-strong-labor-market
1. “Fed's Powell speaks on economy, job market” The Washington Post, 7 Feb. 2023, https://www.washingtonpost.com/business/2023/02/07/powell-economy-jobs/
2. “Fed Chair Powell: Inflation fight will take ‘a significant period of time'” CNN, 7 Feb. 2023, https://www.cnn.com/2023/02/07/economy/jerome-powell-economic-club-speech/
3. “Markets Today: Hawkish RBA, open Powell | Business Research and Insights” Business Research and Insights, 7 Feb. 2023, https://business.nab.com.au/markets-today-hawkish-rba-open-powell-58146/
4. “Powell Warns Another Hot Jobs Report Could Trigger More Rate Hikes—Here's What That Means For The Stock Market” Forbes, 7 Feb. 2023, https://www.forbes.com/sites/dereksaul/2023/02/07/powell-warns-another-hot-jobs-report-could-trigger-more-rate-hikes-heres-what-that-means-for-the-stock-market/
5. “Stock market news live updates: Stocks fall after Powell remarks, as earnings rush in” Yahoo News, 8 Feb. 2023, https://news.yahoo.com/stock-market-news-live-updates-february-8-2023-122505474.html
