More aggressive interest rate hikes may be on the horizon

By Casey Harper (The Center Square)

Federal Reserve Chairman Jerome Powell has warned Congress that more aggressive interest rate hikes may be on the horizon.

Powell testified before the Senate Banking Committee on Wednesday where he cited the strength of the economy, saying bigger hikes may be needed to fight inflation. The Fed recently used 0.25% hikes.

“The latest economic data is stronger than expected, suggesting that the ultimate level of interest rates is likely to be higher than expected,” he said.

Powell is expected to testify again on Wednesday.

The Federal Reserve has raised rates several times to help fight inflation, which has soared in recent years. Inflation is not rising as fast now, but it is still unclear whether stabilization will occur soon.

“The process of getting inflation back to 2% has a long way to go and will likely be bumpy,” Powell told the committee.

Related: Survey: Inflation worries Americans about covering expenses after job loss

After his comments, the Dow fell several hundred points.

“Unsurprisingly, Chairman Powell delivered a message of hawkish undertones in his testimony to Congress,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “While acknowledging that the recent round of economic data has been ‘stronger than expected’, he reiterated that continued policy rate increases are warranted.”

“While some market participants may have been taken aback by Powell’s comments, the reality is that he largely affirms what the bond market has already priced in,” he added. “The terminal level of policy rates will be slightly above previous expectations as the timing of an economic slowdown has been pushed back further.”

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Despite concerns, Powell’s comments did not surprise some experts.

“Chair Powell said explicitly what many market participants were already inferring – economic data is coming in stronger than expected and rates are going to have to rise and stay there longer than previously thought,” said Chris Zaccarelli, Chief Investment Officer at Independent. Advisor Alliance.

“Judging by the initial market reaction, most of this was already priced in, but there must have been holdouts who really believed the Fed would cut this year and that’s extremely unlikely at this point,” he said. he continued.

Syndicated with permission from Center Square.