Powell warns that Fed could get aggressive again with rate hikes

Key learning points

  • Federal Reserve Chairman Jerome Powell announced today that the central bank is likely to raise interest rates higher than initially expected.
  • He also indicated that rate hikes may come at a faster pace.
  • The US economy is showing signs of continued inflation.

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Persistent signs of inflation are forcing the Federal Reserve to consider more aggressive rate hikes.

Higher and faster

The Fed may not have tamed inflation yet.

Federal Reserve Chairman Jerome Powell announced today that the central bank is likely to raise federal interest rates higher than previously thought, and at a faster pace than initially believed, due to signs of continued inflation in the US economy .

“While inflation has eased in recent months, the process of bringing inflation back to 2% has a long way to go and is likely to be bumpy,” Powell told the Senate Banking Committee. “The latest economic data is stronger than expected, suggesting that the eventual interest rate level will likely be higher than previously expected. If the totality of the data indicated that faster tightening is warranted, we would be willing to step up the pace of rate hikes.”

The Federal Reserve began raising interest rates in March 2022 and raised them from 0% to 4.50% to 4.75% within a year. After a series of 75 basis point hikes, the central bank decided to raise interest rates by only 50 basis points in December and 25 basis points in January, signaling a possible cooling of the pace. However, Powell’s comments indicate that the Federal Reserve is poised to potentially get aggressive in its approach again.

Markets reacted only mildly to the news. At the time of writing, the DXY is up 0.98%, while the S&P500 is down 0.96%, the Nasdaq 0.63% and the Dow 0.90%. BTC and ETH are holding up well, with the top cryptocurrency down just 0.45% and the top smart contract platform down 0.49%.

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other crypto assets.

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