Key Points:
According to the Fed chair, the central bank rate hikes are slowing demand in rate-sensitive industries, have moderated, but the pullback may be bumpy.
He thinks it will take time for the policy to have its full impact. The labor market remains extremely tight, and sustained increases in policy rates may be appropriately compared to the stance that is tight enough to bring inflation back to 2% over time.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in prepared remarks for a hearing before the Senate Banking Committee.
Powell said that the scale of prior quarter adjustments signaled that inflation might be greater than projected. The most recent economic figures were better than anticipated, and history said against premature policy relaxation.
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said.
A year ago, the Fed launched an aggressive push to increase its benchmark lending rate, which is presently set at 4.5% to 4.75%. Yet, the US economy has shown amazing resiliency.
According to the Labor Department, payrolls climbed by more than 1 million in the three months ending in January, and recent consumption and inflation hint at sustained price pressures.
After Fed Chairman Powell’s speech, the inversion of the US 2-10-year Treasury yield curve to 97 basis points. The three major U.S. stock indexes fell further, with the Dow down 0.5% and the Nasdaq and S&P 500 down 0.6%.
Bitcoin hit $22,000 per coin, down over 1.8% on the day but quickly recovered to $22,300.
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