Fed patiently fights inflation: Powell is already talking about the next rate hike

Fed patiently fights inflation
Powell is already talking about the next rate hike

Jerome Powell’s biggest fears didn’t materialize in the Economic Club of Washington’s interview, but the prospects for stockbrokers are bleak. Because the high inflation is still causing problems for the Fed chief. He makes it clear that he considers further rate hikes to be very likely.

In the eyes of the US Federal Reserve, the unexpectedly strong US labor market shows why further interest rate hikes are necessary to get inflation under control. In an interview with the Economic Club of Washington, Fed Chairman Jerome Powell said a “significant” drop in the inflation rate is expected for the current year. However, it will probably take until 2024 before this will again reach the target of two percent.

“This process will take time,” Powell said. The process will not only take time, but will also be bumpy. “We have to be patient,” he added.

Labor market is hot

The US Federal Reserve slowed the pace of its rate hikes last week for the second time in a row and raised the target rate by 25 basis points to 4.50 to 4.75 percent – a significant step backwards compared to the end of the year: In December, the interest rate hike was 50 basis points and 75 basis points in November.

The key interest rate level of 5.1 percent announced before the turn of the year would almost have been reached with a further increase of 25 basis points. However, the US Department of Labor announced on Friday that the number of people employed rose by 517,000 in January and the unemployment rate fell to 3.4 percent – the lowest level since 1969. The US job market is so despite rising interest rates and a sluggish global economy started the new year at full speed and could encourage further price increases. That would argue for a harder course from the Fed.

S&P 500 4,157.84

Powell had already made it clear immediately after the last interest rate hike that there was “more to do” in terms of monetary policy. The current outlook suggested weaker growth, a modest rise in unemployment and a gradual decline in inflation. If the economy is broadly developing in line with these expectations, then it is not appropriate to cut interest rates this year, he stressed. If, on the other hand, inflation recedes more quickly, this will be taken into account in monetary policy.

Wall Street not convinced

The stock market feared that Powell could use his appearance at the Economic Club to clearly reject interest rate cuts in the second half of the year. However, such indications were not forthcoming.

Nevertheless, Powell’s statements did not convince investors on Wall Street: the Dow Jones index was meanwhile 0.6 percent lower at 33,677 points. The Nasdaq technology exchange index lost 0.3 percent to 11,858 points. The broader S&P 500 was down 0.4 percent at 4095 points.

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