February 8, 2023: The Year of Significant Declines in Inflation

Jerome Powell: The Fed Might Need More Rate Hikes

Federal Reserve Chairman Jerome Powell thinks the Fed may need more rate hikes. Powell said that the Committee’s message last week was that the deflationary process has begun, but we still have a long way to go. He added that it would undoubtedly take until next year for inflation to drop to 2% due to the economy’s strength and the labor market.

Powell anticipates that they won’t be decreasing rates any time soon, but that they are on the right track and making progress in their goals. H stressed that the Fed believes it will be necessary to implement more rate hikes, especially if the vital economic data continues. He continued that the Fed has the tools to achieve the inflation target, but global events continue to affect inflation.

Regarding the debt ceiling, Powell stressed that no one should think that the Fed can protect or guard the economy if the debt ceiling is not raised. Chairman Powell emphasized that the debate over the debt ceiling could only if the Congress decide on raising the ceiling, which must happen.

Bitcoin Price Exceeds $23 thousand.

Bitcoin rose above $23,000 after Fed Powell’s appearance in the Washington DC economic forum where he confirmed that inflation is declining. The largest digital currency by market value rose 1% to $23,236 today, Wednesday. While ether rose 1.3% to $1,667.63.

Powell said in a question-and-answer session at the Economic Club in Washington, DC, on Tuesday evening that although the process of reducing inflation has begun, the road is still long, and the current stage is very early. 

Cryptocurrency prices briefly turned lower along with the stock market after Powell said that future economic reports could force the central bank to raise interest rates aggressively. Treasury yields fell during the speech. The 10-year note falling by one basis point and the two-year note losing five basis points, while the US dollar index fell. Yields and the dollar index tend to move inversely to cryptocurrencies.

Gold Rose with The Decline of the Dollar. 

Gold prices rose with the dollar retreating from a one-month peak after comments from Powell deemed less hawkish. Powell said that the latest US jobs report shows that it will take some time for inflation to return to the 2% target. This has indicated the need for more interest rate hikes. Gold prices rose yesterday, Tuesday, after the dollar retreated from its highest level in a month after Powell made those statements. Most traders in the market agreed that the hawkish tone did not come as a surprise.

The pressure continued on the dollar today, Wednesday, falling in the latest trading by 0.2%, increasing the attractiveness of gold to buyers holding other currencies. Gold in spot transactions rose 0.4% to $1880.97 an ounce, and US gold futures rose 0.4% to $1880.10. Lower interest rates benefit gold by reducing the opportunity cost of holding non-yielding yellow metal. Spot silver rose 1.1% to $22.43 an ounce after hitting a two-month low in the previous session. Platinum rose 1.2% to $985.10, and palladium rose 1.3% to $1,667.36.

US Indices Rebounded After Investors Absorbed Powell’s Speech.

US indices recorded a collective rise at the close of Tuesday’s session after investors digested the statements of the US Federal Reserve Chairman regarding the period that the central bank may need to tame inflation.

Morgan Stanley announced that it added 25 basis points to its forecast for the policy meeting in May. However, the investment and banking leader continued to expect a rate cut of 25 basis points in December 2023, knowing that the markets are still pricing interest rates above 5% this year.

The Dow Jones index closed up 0.8%, or 265 points, to 34,156.69 points, its highest close in 3 weeks. The rise was supported by Boeing stock, which jumped by 4% after the US aircraft manufacturer confirmed that it expects to cut about 2,000 jobs. The Nasdaq index rose by 1.9% to 12,113.79 points. The S&P 500 rose by 1.3% by closing near its highest level in five months, at 4,164.00 points. More than half of the companies in the S&P 500 index announced their financial results for the third quarter. 69% achieved revenues above expectations.

Microsoft stock rose more than 4%, its highest close in about five months. The company revealed the integration of ChatGPT, a chatbot from OpenAI, into its products. The company is revamping the Bing search engine and Edge web browser with artificial intelligence to drive a new wave of technology and reshape how people gather information. By working with the emerging OpenAI company, Microsoft aims to expand its share, which currently amounts to 9%, at the expense of its competitor, Google, owned by Alphabet.

Japan’s Nikkei falls, affected by weak profits in the technology sector.

The Japanese Nikkei index fell on Wednesday, February 8, amid heavy selling in shares of major technology companies such as Nintendo and SoftBank Group, after announcing disappointing financial results, which dispelled any hopes of benefiting from the gains recorded by Wall Street last night.

SoftBank Investment Group fell 5.1% after posting a quarterly loss, while video game maker Nintendo fell 7.5% after cutting profit forecasts. Shares of Sharp, the electronics industry, fell 12.6%, becoming the largest loser on the Nikkei index by a large margin after it failed to record the expected profits.

The Nikkei index fell 0.3% to close at 27,606.46 points after starting the day with slight gains on the back of solid progress for all three major US stock indices. Meanwhile, the Topix index ended the session at 1983.97 points, having risen to 1991.49 points for the first time since December 1, before slipping into the red zone.

The number of gainers was almost equal on the Nikkei index, as 106 stocks rose out of a total of 225 stocks, 114 fell, and five closed unchanged.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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