Jerome Powell, chairman of the US Federal Reserve System (Fed), suggested that the Fed could speed up interest rate hikes again to curb inflation, and the ‘final rate’ could also be higher than previously expected. In response to Powell’s remarks that left open the possibility of a big step (a 0.5 percentage point increase) next month, the market also showed signs of shaking, such as a sharp rise in US Treasury yields during the day.
Chairman Powell attended a hearing on the U.S. Senate Banking Committee on the 7th (local time) and read a prepared statement before answering questions from lawmakers. It suggests that,” he said. At the Federal Open Market Committee (FOMC) meeting at the end of last year, the Fed predicted that interest rates would range from 5.0% to 5.25% by the end of this year. Currently, the US benchmark interest rate has risen to 4.5-5.75%, and Chairman Powell confirmed that interest rates are highly likely to rise by at least 0.75 percentage points in the future. Regarding questions from lawmakers afterward, Chairman Powell said, “In the dot plot (to be announced in March), the peak of interest rates will be higher than last December’s forecast.”
In addition, at the Federal Open Market Committee (FOMC) held on the 21st and 22nd of this month, it was suggested that the interest rate increase range, which had been lowered by the baby step (rising by 0.25 percentage points), could be adjusted to the big step again, suggesting that it could return to a high-intensity tightening mode. “If the overall economic data show the need for faster tightening, we will be prepared to increase the pace of rate hikes,” Powell said.
The Fed has raised interest rates by a total of 4.5 percentage points eight times in a year since March last year. In particular, after taking the giant step four times in a row (0.75 percentage point increase) from June, inflation slowed down from the end of last year and returned to the normal speed of the baby step (February) after passing through the big step (December). However, amid signs of a recent rebound in inflation, it has raised the possibility of a big step turn this month.
In fact, right after Chairman Powell’s remarks, interest rate futures trading investors raised the possibility of a big step in March to 51.3%. For the first time, the possibility of a big step surpasses that of a baby step. As a result, the two-year Treasury bond yield, which is sensitive to the Fed interest rate, rose to 4.96% during the intraday, the highest in 16 years since 2007.
Senator Elizabeth Warren, a Democrat who has criticized Powell that day, said, “If you raise interest rates and increase unemployment, millions of workers will suffer. When pushed to say, “Tell them what to say,” Chairman Powell responded by saying, “If we let go of our mandate for price stability, then will they benefit more?” Some lawmakers also pointed out that inflation caused by supply chain problems, such as the war in Ukraine, can only be raised by raising interest rates. In response, Rep. Powell said, “In the early stages of the rise in inflation, the supply chain factor was large, but recently the factor of imbalance between supply and demand has become more prominent. “While the Fed’s price stabilization tools are limited, we will do our part to balance supply and demand.”
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.