Federal Reserve Chair Powell turns hawkish, market expects interest rate hike of 0.25% in March
The Chairman of the Federal Reserve, Jerome Powell, testified before Congress, mentioning that recent economic data has been stronger than expected. Despite the 4.25% rate hike already implemented by the Federal Reserve, he stated that further rate hikes are still appropriate as the Fed continues to strive for maximum employment and price stability. According to data from CME Group's FedWatch, investors are now pricing in nearly a 70% probability of a 25 basis point rate hike in March.
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Inflation Slowing but Still in Early Stages
Although Powell indicated during the last meeting when the decision to raise interest rates was made that the process of disinflation has begun, he also added that it is "still in the early stages." This is because the latest economic data has been stronger than expected, indicating that the eventual level of interest rates may be higher than previously anticipated.
Powell stated during the meeting that despite the Fed raising rates by 4.25% over the past year, it is still appropriate to continue raising rates in order to bring inflation back down to the 2% target. Due to the lagged effect of monetary policy, the impact of rate hikes on slowing inflation takes time to materialize, leading the Fed to slow the pace of rate hikes in the past two meetings. Future decisions will be made based on the data released and its impact on economic activity and inflation prospects, with decisions being made at each meeting.
If overall data suggests the need to accelerate tightening policies, the Fed will be prepared to quicken the pace of rate hikes. Historical records strongly warn that premature policy easing can have adverse consequences. The Fed will persist until the job is done and make every effort to achieve its maximum employment and price stability goals.
Two Rate Hikes in March?
According to data from CME FedWatch, investors now see a nearly 70% chance of a 2-rate hike this month, with the market's expected final rate range rising to 5.5%-5.75%. Not long ago, the market's expectation was between 5.25% and 5.5%.
Impacted by Powell's hawkish comments, the S&P 500 fell by 1.53% yesterday, the NASDAQ dropped by 1.25%, and at the time of writing, BTC was priced at $22,240 and ETH at $1,567.
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