Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Powell Opens Door to Faster Rate-Hike Path to Curb Inflation

EconomyJan 27, 2022 01:12
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.

(Bloomberg) -- Jerome Powell made clear the Federal Reserve would act as needed to cool the hottest inflation in almost 40 years, endorsing interest-rate liftoff in March and opening the door to more frequent and potentially larger hikes than anticipated.

Stressing uncertainty on the economic outlook, including the risk that price pressures could fail to abate as forecast, the Fed chair told reporters on Wednesday that policy must be “nimble” to confront risks to its mandate for price stability and maximum employment. Investors took the comments to mean the Fed would be more aggressive in tightening than previously expected.

As Powell spoke during a 55-minute virtual press conference, stocks erased gains, bond yields surged and the dollar advanced. The S&P 500 index posted a back-to-back drop after rallying more than 2% earlier in the day, while the two-year Treasury yield had the largest one-day increase since March 2020.

“There’s a risk that the high inflation we’re seeing will be prolonged, there’s a risk that it will move even higher. We have to be in a position with our monetary policy to address all of those plausible outcomes,” Powell said, adding that officials were “of a mind” to raise rates in March. 

He spoke after the Federal Open Market Committee confirmed it would end its asset purchase program in early March and begin shrinking its bond holdings after rate increases commence.

The hawkish pivot, against a backdrop of turmoil in stocks, comes amid consumer inflation readings that have repeatedly surprised and hit 7% -- the most since the 1980s -- and a tight labor market that’s pushed unemployment down faster than anticipated to almost its pre-pandemic level.

“The implication was they would probably have to go a bit further and a bit faster than people were anticipating,” former New York Fed President Bill Dudley told Bloomberg Television. “I don’t think he committed to doing every meeting. I think what he committed to is ‘we’re probably going to end up doing quite a bit more than people had anticipated’.” Dudley is a senior adviser to Bloomberg Economics.

What Bloomberg Economists Say

“The hawkish tone of the statement and Chair Jerome Powell’s press conference suggests there’s upside risk to the four rate hikes priced in by financial markets ahead of the meeting. Bloomberg Economics forecast earlier this month the year will probably end with a total of five hikes, with an upside risk for six.”

-- Anna Wong, Yelena Shulyatyeva, Andrew Husby and Eliza Winger

A rate hike would be the central bank’s first since 2018, with many analysts forecasting a quarter-point increase in March to be followed by three more this year and additional moves beyond. Critics say the Fed has been too slow to act and is now behind the curve in tackling inflation, though key market gauges don’t back that view. 

Even some Fed officials have publicly discussed if they should raise rates more this year than forecast. In December their median estimate was for three hikes in 2022. Powell made a point of saying that the economic projections would be updated in March.

“The Fed is clearly looking through omicron and will not react to weak data for January and February,” Bank of America Corp (NYSE:BAC). economists led by Ethan Harris said in a note. “Bottom line, the risks are skewed to more than four hikes this year.”

Futures indicated around 30 basis points of tightening at the March meeting, showing a quarter-point increase is fully priced and implying a one-in-five chance of a 50 basis point hike.

Officials held the target range for their benchmark policy rate unchanged at zero to 0.25% as expected. They also said they will conclude asset purchases on schedule, leaving them on track to end in “early March.”

The Fed’s balance sheet stands at nearly $8.9 trillion, more than double its size before officials began massive asset purchases at the onset of the pandemic to calm market panic.

In a separate statement outlining the principles it would apply to reducing its balance sheet, the Fed said that over the longer run, it intends to primarily hold Treasury securities. The Fed currently also holds mortgage-backed securities and the shift is aimed at minimizing its effect “on the allocation of credit across sectors of the economy,” it said. 

Powell said the Fed will make decisions on the timing and pace of balance-sheet reduction at coming meetings.

Despite criticism that it has dragged its feet, the Fed is moving much quicker than it once expected to -- prompted by the failure of inflation to fade as anticipated amid robust demand, snarled supply chains and tightening labor markets. As recently as September, central bank officials were split on whether any rate hikes would be warranted in 2022.

The meeting is the last of Powell’s current term as Fed chair, which ends in early February. He’s been nominated to another four years at the helm by President Joe Biden and is expected to be confirmed by the Senate with bipartisan support. 

©2022 Bloomberg L.P.

Powell Opens Door to Faster Rate-Hike Path to Curb Inflation
 

Related Articles

Stocks tumble on growth concerns, bond yields slip
Stocks tumble on growth concerns, bond yields slip By Reuters - May 24, 2022 1

By Herbert Lash and Lawrence White NEW YORK/LONDON (Reuters) -Shares slid worldwide on Tuesday as supply chain woes and surging costs hurt corporate earnings and manufacturing...

WHO donors agree to fix 'rotten' funding model
WHO donors agree to fix 'rotten' funding model By Reuters - May 24, 2022 1

By Emma Farge and Jennifer Rigby LONDON (Reuters) - World Health Organization members formally agreed on Tuesday to a plan to overhaul its funding model which has been described...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email