by Geoffrey Smith
Investing.com – Fed Chairman Jerome Powell said Tuesday that US interest rates may need to be raised further than previously thought by the Federal Reserve to tame inflation.
“The latest economic data came in stronger than expected, suggesting that the final level of interest rates is likely to be higher than previously expected,” Powell said in prepared remarks at the beginning of his semiannual testimony to the Senate Banking Committee. Congress.
In addition, Powell said the Fed could again hike rates significantly. This would be a sharp reversal of its actions in the previous two meetings when it reduced its size from 75 basis points to 50, then 25.
“If the totality of the data indicates that more rapid tightening is warranted, we stand ready to increase the pace of rate hikes,” Powell said. He added that policy would need to remain restrictive “for some time” and that “the historical record strongly cautions against prematurely loosening policy.”
Powell was making his comments after a sequence of US economic data – from the labor market and for January – came in stronger than expected. While analysts point to strong seasonal effects that could skew the overall number, the pattern has led volatile markets to raise their expectations for the ‘terminal’ Fed funds rate in the current cycle to 5.5% over the past few weeks. .
Despite raising the possibility of a 50-basis-point hike at the Fed’s next meeting on March 16, Powell still gave the central bank plenty of room to maneuver, stressing that the central bank “is meeting, meeting, meeting our expectations.” Will continue to make decisions.” taking into account the totality of the incoming data and their implications for the outlook for economic activity and inflation.”
The dollar climbed on the news, as market participants took Powell’s comments as an invitation to speculate on a 50-basis-point hike next week. Short-dated bond yields also rose, but yields on 10-year and bonds fell, reflecting the longer-term implications of what would be an aggressive policy tightening move.
Still, the greenback, which tracks against a basket of advanced economy currencies, is struggling to make any significant new highs. As of 10:30 ET (15:30 GMT), it was up 0.7% at 105.03. The yield on the benchmark Treasury was up 6 basis points to 4.96%, the highest since 2007. However, the yield fell by 1 basis point to 3.98%. Traditionally, an ‘inversion’ of the yield curve, in which long-term returns are lower than short-term returns, is seen as the beginning of a recession.
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