Powell Paves the Way for Another 50bps Rate Hike

The first day of Federal Reserve Chairman Jerome Powell’s two-day semi-annual before Congress on monetary policy.

Federal Reserve Chairman “Jerome Powell” opened the way to the possibility of returning to the pace of hiking interest rates by 50bps at the recent March meeting, based on the strength of the upcoming economic data.

Federal Reserve Chairman Jerome Powell testified before the US Senate on Tuesday that interest rates will likely be higher than expected.

Analysts of the US bank said in a note: “Jerome Powell’s” assessment of economic expectations acknowledged that high rates affect the interest-sensitive components of the economy, including housing. However, a worrying acceleration in January partially reversed the weak trends we saw in the data just a month earlier.

It also means that next Friday’s US monthly jobs report will be critical. Bullish surprises in the jobs report could also lead to a faster and longer tightening cycle. The Federal Reserve had raised interest rates by 50 basis points in the last meetings of 2022, but it reduced this rate by 25 basis points in the first meetings of this year.

The Fed’s probability of raising interest rates by 50 basis points this month has increased from 9% to 70%, according to Fed fund futures, which accepted Powell at his bullish word. Peak is now between 5.50 and 5.75%, with a chance of even higher.

Goldman Sachs increased its top prediction by 25 bps to 5.5-5.75%, anticipating the FOMC dot plot to follow suit. Powell’s emphasis on the “totality” of the statistics gives Friday’s employment numbers and next week’s CPI much weight.

Warren of the Democratic Party questioned Powell about the possibility of American employment losses due to the Fed’s fight against rising inflation.

Senator Elizabeth Warren, often an opponent of the Fed chief, pointed out that if the unemployment rate increases from its present rate of 3.4% to reach the Fed’s forecasts of 4.6% by the end of the year, a further 2 million people would be forced to lose their jobs.

What would you say to the two million devoted workers currently holding respectable positions and whom you plan to dismiss over the upcoming year? Warren enquired. How would you defend your opinion that they should be fired?

Powell claimed that high inflation is troubling the lives of all Americans, not just two million. He replied that working people would not be doing better if the Fed officials turned their backs on their responsibilities and left inflation at 5% or 6%.

Powell reaffirmed that he thinks the Fed can reduce inflation without a significant rise in unemployment. He added that there might be tightness in the labor market due to declining job vacancies. It is worth noting that the unemployment rate in the United States has declined to its lowest level in 50 years.

Fed Chair also called on Congress to raise their debt ceiling to avoid extraordinary measures. He added that raising the debt ceiling is the only way for the US to pay its bills on time and to prevent the debt default scenario, which, if it happened, would cause a global economic crisis.

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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