The head of the US Federal Reserve stated that the central bank was ready to increase the rate and magnitude of interest rates to combat persistently high inflation. This would send global markets lower.
Wall Street saw indices fall with increasing speed, while London’s FTSE 100 fell late in the afternoon. Sterling fell 1.4% on the day to $1.186. This is a two-month high for the dollar against a basket large currencies. Jerome Powell warned rates could be higher than expected.
Unexpectedly, the US price growth rose last month, reducing confidence in the Fed’s aggressive campaign for bringing it down from its highest levels in generations.
Powell stated that recent data was “stronger” than anticipated during a Senate hearing. Powell stated that if the data showed that tightening was warranted faster, then we would consider increasing the rate of rate increases.
Traders immediately increased their wagers on the possibility of a huge rate increase at this month’s Fed policy meeting. According to CME’s FedWatch tool, markets are currently pricing 50 basis points of an increase as being roughly equal to a 25 basis-point rise.
In December, policymakers predicted that the US would see interest rates rise to 5.1% from their current range of 4.5 percent to 4.75 percent. The Fed quickly increased rates to try to cool the world’s biggest economy, even though they were close to zero when they started last year.
Powell indicated yesterday that the American central banking was ready to go higher despite persistently high inflation readings. He stated that “the ultimate level of interest rate is likely to exceed what was previously expected.”
Investors were rattled by his intervention. Investors were rattled by his intervention. The US Treasury yield for two years, which is usually in line with interest rate expectations, reached a high of 5% and rose to its highest point since 2007. This was after investors analyzed comments made by the Fed chairman.
Jonas Goltermann (Deputy Chief Markets Economist at Capital Economics) stated: “We now anticipate three additional 25 basis point increases at the next three FOMC meetings.
“If anything, there is more risk of the FOMC doing something.” Powell’s testimony and previous comments by FOMC members suggest that the decision to increase or decrease the base rate in March between 25 and 50 basis points will be influenced by the release of inflation data and payrolls in the next days.
Wall Street’s S&P 500, which can be considered a barometer for corporate America’s health, fell 62.05 points or 1.5 percent to close at 3,986.37 in New York. The Dow Jones industrial average dropped 574.98 points or 1.7% to 32,856.46 while the tech-oriented Nasdaq lost 145.41 points or 1.3 percent to 11,530.33.
The FTSE 100 in London lost its gains and closed down 10.31 point, or 0.1%, at 7,919.48. The FTSE 250 mid-cap fell 0.6%, or 107.5, to 19,956.61.