The CME’s Fedwatch Tool raised its forecast that the Federal Reserve will raise the federal funds rate by 50 basis points at the Open Markets Committee meeting later this month following a speech by Federal Reserve Chairman Jerome Powell.
During the semiannual monetary policy report for the Senate Banking, Housing and Urban Affairs Committee, Powell reiterated the central bank’s intention to continue raising interest rates at FOMC meetings in the coming months, with an accelerated tightening if the US economy shows no signs of exhibit cooling.
Federal Reserve willing to increase rate hikes
Powell said the latest economic data came in “stronger than expected,” meaning the Federal Reserve could continue to raise rates beyond its initial target.
“If the totality of the data indicated that faster tightening is warranted, we would be willing to step up the pace of rate hikes,” he affirmed.
After Powell’s opening remarks, Bitcoin fell about 1.7% to under $21,934 before recovering to $22,277.
On the other hand, ETH, the second largest cryptocurrency, dropped about 1% from $1565.46 to $1544.45.
Traditional markets saw the Dow Jones Industrial Average drop 1.4%, while the S&P 500 fell about 1.2%.
The Federal Reserve uses interest rates, among other things, to realign supply and demand imbalances that contribute to rising prices. It has hiked rates by 4.5% basis points over the past year to cool the sweltering US economy with pandemic stimulus money and increased demand due to disruptions in global supply chains.
The Federal Reserve uses a variety of measures, including the consumer price index, the personal consumption expenditure index, and US employment data, to track how changes in its monetary policy affect prices for ordinary Americans.
Senate bench chairman blames inflation on growing wage demand
Powell confirmed that a tight labor market, evidenced by an unemployment rate of 3.4% in January 2023, remains a major challenge to contain prices. He also confirms that there were 1.9 jobs in December 2022. Higher wage demands push up prices as companies pass higher labor costs on to consumers.
Senate Banking Chairman Sherrod Brown shared the view of UBS Bank Chief Economist of Global Wealth Management Paul Donovan, blaming rising prices on loopholes that allow companies to expand profit margins and raise wages.
The central bank awaits February 2023 employment data to be released later this week, which tracks the health of the US job market.
The ADP Nonfarm Employment Change, which measures the month-over-month change in the wage information of 400,000 U.S. corporate clients, is expected on March 8, 2023. Data from this report tends to be a reliable predictor of U.S. nonfarm payrolls, from three days later.
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