Jay Powell has warned that the US Federal Reserve (Fed) is ready to return to bigger rate hikes to fight inflation when it attends Congress on Tuesday.
The U.S. Federal Reserve (Fed) chairman has announced public intervention for the first time since data showed the central bank was struggling to cool the U.S. economy despite a year-long campaign to tighten monetary policy. gone.
“The final level of interest rates is likely to be higher than we had previously expected,” Powell told the Senate Banking Committee, adding that recent economic data were “strong than expected.”
“If the data as a whole shows that a faster tightening is warranted, we would be ready to accelerate the pace of rate hikes,” he added.
The Fed chairman’s remarks prompted a sell-off in the stock market, with the S&P 500 down about 1% in late-night trading in New York and the Nasdaq down 0.84%. His two-year Treasury yield, which has moved in line with market expectations, has risen to its highest level since 2007.
According to CME Group, traders increased their bets on a half-point rate hike at the Fed’s March 21-22 meeting.
The central bank cut rate hikes from 0.75 percentage points from June to November to 0.5 percentage points in December. It fell again in February, turning to a more traditional quarter point gain.
The Fed’s key rate is now in its target range of between 4.5% and 4.75% and was near zero at this time last year. In December, a Fed official predicted interest rates would hit his 5.1% peak this year.
But Fed Chair Powell’s comments show he is willing to squeeze more pressure on the economy to keep inflation down.
His hawkish rhetoric is in line with European Central Bank President Christine Lagarde’s statement that price pressures are ‘sticky’ over the weekend and more action is needed to tackle the inflation ‘monster’. Financial markets now expect European interest rates to rise from 2.5% to more than 4%.
In contrast, Bank of England Governor Andrew Bailey was careful not to dictate British interest rates.
Two key data releases scheduled ahead of this month’s Fed meeting will help inform the next decision on interest rates: Friday’s monthly employment report and next week’s February consumer report. Price index report.
Investors and economists will be watching to see if the January labor market and consumer demand recovery sustained last month. Powell said the latest data “likely reflect unseasonably warm weather” but also showed “inflationary pressures are higher than expected.”
Democrats are increasingly concerned that the Fed will tighten monetary policy too far, triggering a recession that could undermine many of the labor market gains achieved during the recovery from the coronavirus pandemic. But Powell said it was “very likely” that “some softening in labor market conditions” would be needed to raise core inflation to the Fed’s 2% target from 4.7% in January. high,” suggesting that unemployment is expected.
Senate Banking Committee Chairman Sherrod Brown said, “We cannot risk undermining one of our current economic successes.”
Elizabeth Warren, a progressive Democrat from Massachusetts, accused Powell of “risking people’s lives.”
