08.02.2023 12:47 PM
Powell stresses the need for further interest rate hikes

This image is no longer relevant

Fed Chairman Jerome Powell held on to his view that interest rates should continue to rise in order to suppress inflation. He also suggested that borrowing costs could peak higher than expected.

The statement was similar to what he said last week, but at that time markets ignored his warning as they did not anticipate a strong labor market data.

Now that everyone has seen the latest employment report, that is, non-farm payrolls rose by 517,000, while unemployment fell to 3.4%, it is clear where the Fed is headed and why it is not going to cut rates.

This image is no longer relevant

"We think we will need further rate hikes," Powell said. "The labor market is unusually strong. If it overheated, then we have to do more," he added.

Bonds sold off after Powell's speech as it opened the door for a higher peak rate in 2023 if the labor market does not start to cool.

This image is no longer relevant

Last week, the FOMC raised the base rate by a quarter of a percentage point to a range of 4.5% to 4.75%. But now, investors expect the rate to rise above 5%, similar to what Fed officials predicted in December.

Powell argued that easing pressure on the labor market was part of the response to lower inflation in core services other than housing. The Fed was caught off guard by rapid price increases in the final quarter of 2021, when inflation, according to their preferred measure, rose by 5%, which is well above their target. Although some inflation figures have fallen in recent months, the Fed chairman said they need "substantially more evidence" to be confident that inflation is indeed heading downwards.

Andrey Shevchenko,
Analytical expert of InstaForex
© 2007-2024
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex always strives to help you
    fulfill your biggest dreams.
  • Chancy Deposit
    Deposit your account with $3,000 and get $9000 more!
    In May we raffle $9000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
  • Trade Wise, Win Device
    Top up your account with at least $500, sign up for the contest, and get a chance to win mobile devices.
  • 100% Bonus
    Your unique opportunity to get a 100% bonus on your deposit
  • 55% Bonus
    Apply for a 55% bonus on your every deposit
  • 30% Bonus
    Receive a 30% bonus every time you top up your account

Recommended Stories

Can't speak right now?
Ask your question in the chat.
Widget callback