Powell Warns of Potential Economic Catastrophe as Interest Rates Rise
By Federal Reserve Chair Jerome Powell testified before the House Financial Services Committee Wednesday, warning lawmakers of a potential economic catastrophe if the debt ceiling is not raised and outlining the consequences of higher interest rates.[0]
Powell indicated that the Fed will likely have to keep U.S. interest rates higher for longer to win the war against problematic price inflation. He said recent stronger U.S. economic data has likely rolled back some of the softening the U.S. had seen on the inflation front the past few months, and that the ultimate level of interest rates is likely to be higher than previously anticipated.[1]
At the outset of Tuesday, stocks were unsteady – and this unease only intensified as Jerome Powell, Federal Reserve Chair, commenced his biannual address to Congress.[2] Powell's prepared remarks suggested that if the economic data remains positive, the Fed will continue to increase rates. Investors did not welcome the commentary, causing the major benchmarks to plunge today.[2]
The odds of a 50-basis-point Fed rate hike on March 22 shot up to 70.5% on Tuesday, up from 31% on Monday and 24% a week earlier.[3] The probability is now 72%.[4] The CME FedWatch tool is predicting a 69.4% likelihood that the Federal Reserve will increase interest rates by 25 basis points to a range of 4.75% to 5% on March 22nd.[5] Furthermore, there is a 30.6% likelihood of a larger, 50-basis-point increase.[6]
The yield on the 2-year Treasury note advanced to 4.892%, up from 4.876% on Friday.[6] The yield on the 10-year Treasury note rose to 3.981%, up from 3.962% as of late Friday. The yield on the 30-year Treasury bond climbed to 3.911% from 3.886% late Friday. Meanwhile, the yield on the benchmark U.S. 10-year Treasury note is presently fetching 3.972%, and the 2-year note yield pushed above 5% for the first time since 2007, presently fetching 5.038%.
The Republicans are insisting that the government must limit its expenditures in order to increase the debt ceiling.[7] The Democratic party has stated that if the debt ceiling is not increased, the Republican party would be responsible for the government's inability to make payments, which could lead to a costly federal default.[7]
0. “Watch Fed Chair Jerome Powell speak live in second day of Capitol Hill testimony” CNBC, 8 Mar. 2023, https://www.cnbc.com/2023/03/08/watch-fed-chair-jerome-powell-speak-live-in-second-day-of-capitol-hill-testimony.html
1. “Fed's Powell tells senators rate hikes could go higher, come faster” Roll Call , 7 Mar. 2023, https://www.rollcall.com/2023/03/07/feds-powell-tells-senators-rate-hikes-could-go-higher-come-faster/
2. “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
3. “Dow Jones Plunges As Powell Makes This Pledge; Tesla Fightback Falters As Rivian Craters” Investor's Business Daily, 7 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-dives-as-powell-makes-this-inflation-pledge-tesla-stock-fightback-falters-as-rivian-craters/
4. “Dow Jones Futures RiseAfter ‘Faster' Fed Chief Powell Hits Stocks; Tesla Falls On New Probe | Investor's Business Daily” Investor's Business Daily, 8 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-faster-fed-chief-powell-hits-stocks-tesla-falls-below-key-level/
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. “‘Buckle up’: Treasury yields edge near 4% as Powell testimony, jobs data loom” MarketWatch, 6 Mar. 2023, https://www.marketwatch.com/story/buckle-up-treasury-yields-extend-pullback-from-highs-as-powell-testimony-and-jobs-data-loom-78935ae1
7. “Federal Reserve Chair Jerome Powell warns inflation fight will be long and bumpy” NPR, 7 Mar. 2023, https://www.npr.org/2023/03/07/1161623217/federal-reserve-jerome-powell-senate-inflation-interest-rates-economy-recession
