Federal Reserve Admits Further Hikes Needed

Stock News Around the World: Insights from April 10th

More Rate Hikes On Way

Federal Reserve Chair Jerome Powell has reiterated that interest rates need to continue rising in order to keep inflation under control. In a recent event in Washington, Powell indicated that borrowing costs may reach higher levels than previously anticipated, causing the bond market to pay close attention. Powell’s remarks follow last week’s decision by the Federal Open Market Committee to raise rates by a quarter point and come after the release of a red-hot employment report, showing that employers added 517,000 new workers in January while unemployment fell to a record low of 3.4%.

Powell stated that if the job market remains strong, further rate increases may be necessary. He also indicated that the 5.1% interest-rate peak forecast by officials in December is a soft ceiling, as he is willing to follow the data and move higher if needed. The Federal Reserve is determined not to declare victory over inflation prematurely, as a string of milder readings on price pressures has fanned optimism in the Fed’s ability to control inflation.

However, there are still hurdles for inflation on the horizon, and the Fed will likely push ahead with rate hikes in March and May. Investors are now anticipating rates to rise just above 5%, similar to the December forecast by Fed officials. Powell has argued that reducing pressure in the labor market is part of the solution to cooling off inflation in core services, excluding housing, a measure he has highlighted.

U.S. central bankers were caught off guard by the rapid rise in prices in the final quarter of 2021, with inflation rising 5% in the 12 months through December, far above the 2% target. While some measures of inflation have cooled in recent months, Powell has emphasized that officials need “substantially more evidence” to be confident that inflation is on a downward path.

Federal Reserve Chair Jerome Powell is determined to continue raising interest rates in order to keep inflation under control. Despite some milder readings on price pressures, there are still hurdles for inflation on the horizon, and the Fed is likely to push ahead with rate hikes in the coming months. The bond market is paying close attention to Powell’s remarks, as he has indicated that borrowing costs may reach higher levels than previously anticipated, and is willing to follow the data and move higher if needed.

 

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