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FED warns for bigger interest rates.

 

FED
Jay Pow­ell warned yes­ter­day that the US Fed­eral Reserve was pre­pared to return to big­ger interest rate rises to fight infla­tion. Pow­ell told the Sen­ate bank­ing com­mit­tee that «the ulti­mate level of interest rates is likely to be higher than pre­vi­ously anti­cip­ated» and said that recent eco­nomic fig­ures were «stronger than expec­ted». The Fed chair’s remarks promp­ted a stock mar­ket sell-off, with the S&P 500 and Nas­daq both fall­ing nearly 1 per cent by mid­day trad­ing yes­ter­day. The two-year Treas­ury yield, which moves with mar­ket expect­a­tions, rose to its highest since 2007.

The dol­lar increased 1 per cent against the euro to $1.0572. The Fed’s primary interest rate is now at a tar­get range of 4.5-4.75 per cent, com­pared with near zero a year ago. In Decem­ber, Fed offi­cials pro­jec­ted interest rates would reach a peak of 5.1 per cent this year. But Pow­ell’s com­ments sig­nal he is will­ing to squeeze fur­ther.

Fin­an­cial mar­kets now expect the European rate to rise from 2.5 per cent to above 4 per cent. Pow­ell said the hot data «reflects the unseason­ably warm weather» but also indic­ates «infla­tion­ary pres­sures are run­ning higher than expec­ted». Demo­crats have been grow­ing anxious that the Fed will go too far in tight­en­ing mon­et­ary policy, trig­ger­ing a reces­sion that could under­mine many of the labour mar­ket gains achieved dur­ing the recov­ery from the pan­demic. But Pow­ell main­tained that get­ting core infla­tion to the Fed’s 2 per cent tar­get from Janu­ary’s level of 4.7 per cent would «very likely» require «some soften­ing in labour mar­ket con­di­tions», sug­gest­ing job losses ahead.

Eliza­beth War­ren, the pro­gress­ive Demo­crat from Mas­sachu­setts, accused Pow­ell of «gambling with people’s lives». Pow­ell respon­ded that the «social cost of fail­ure» on infla­tion was «very, very high» and warned of the risk of the «psy­cho­logy» of «self-per­petu­at­ing» infla­tion.

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  1. Paul8 March 2023 at 16:17

    5.1 seems like a low number right now and we're just at the start of the year. Make it closer to 6.

    ReplyDelete

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