The Fed is still likely to raise interest rates further in March.
Yesterday, Fed Chairman Jerome Powell said the Fed is still leaving open the possibility of continuing to raise interest rates at this month's meeting. Mr. Powell said data from the jobs report and inflation in February 2023 will influence the Fed's decision on interest rates in March.
The situation is considered even more serious by many experts when, in the hearing on March 7, Mr. Powell said that the Fed is considering raising interest rates by 50 basis points instead of 25 points as previously forecast. This move will affect investor sentiment for the rest of 2023.
The Fed is still likely to raise interest rates if the signals on employment and inflation in February statistics do not progress (Photo TL)
However, the Fed Chairman still spoke to reassure investors: "I have to emphasize that the Fed has not yet made a decision on this issue, but if all the data indicate that it is necessary to raise interest rates higher, we will be ready to do that."
At the February 2023 meeting, Fed officials slowed the pace of rate hikes to 25 basis points after raising the base rate by 75 basis points in four consecutive meetings in mid-2022 and raising it by 50 basis points in December 2022.
The Fed's changing attitude in the fight against inflation
In February, Fed members said that slowing down the rate hikes would help the agency assess the impact of the rate hikes on the economy . Previously, in the December meeting, most Fed members agreed to raise the interest rate to 5%-5.5% and at the same time maintain this interest rate until 2024.
However, Mr. Powell’s remarks on March 8 also signaled a notable change in the agency’s plan to fight inflation. If inflation continues to develop unfavorably, the agency will still be forced to raise the base interest rate. Thus, the February CPI report will be the basis for the Fed to decide whether to raise interest rates by 25 or 50 points.
"We still have some important data to consider in the coming period. We have not made any decisions about the upcoming March 2023 meeting." Mr. Powell left open the possibility of the Fed raising interest rates at the upcoming March meeting.
Investors' expectations completely reversed, predicting the Fed to raise interest rates to 5.5% by mid-2023
Several economic reports are showing that the job market, consumer spending, and inflation are all stronger than experts expected. Revisions to the fourth quarter of 2022 also show signs of a less-than-expected slowdown in inflation.
Mr. Powell said that employment, spending, manufacturing and inflation data had partially reversed earlier cooling trends. The figures showed that inflationary pressures were stronger than forecast at the time of the previous policy meeting. At the same time, there was no data indicating that the Fed had tightened policy too much.
This information has really raised concerns among investors about the possibility of the Fed continuing to raise interest rates. This move will cause borrowing costs to increase, affecting the valuation of some types of assets such as stocks and real estate, and at the same time, the basic interest rates of other economies in the world will also be forced to increase following the Fed.
At the end of the last meeting, many forecasts suggested that the Fed would only raise interest rates once more, to 4.9%, and then cut them by the end of 2022. However, the situation has completely changed, and this March, CME Group predicted that the Fed would raise interest rates to 5.5% by mid-2023, maintaining them at this level until the end of the year.
Source
Comment (0)