Fed Chair Powell: Disinflationary Process Has Begun, Interest Rates to Rise Further if Data Continues Hot

On Tuesday, Federal Reserve Chair Jerome Powell spoke at the Economic Club of Washington, D.C. to discuss the latest interest rate increase and the outlook for future rate hikes.[0] Powell said the “disinflationary process” has begun and there is a “significant road ahead” to bring inflation down.[1] He stated that if economic data continues to come in hot, then the Fed may need to raise rates more than currently priced in.

In response to the speech, Treasury yields pushed higher late in the day, with the 10-year Treasury yield (US10Y) climbing 5 basis points to 3.68%, while the 2-year yield (US2Y) rose 5 basis points to 4.50%.[2] CVS Health (CVS) was up 0.5% after news that it plans to buy Oak Street Health (OSH) for $10.5 billion.[3] Skyworks Solutions (SWKS) stock skyrocketed as several analysts raised their price targets following the chipmaker’s earnings report.[4]

In January, the US job market showed its continued strength with a remarkable 517,000 new jobs added – much higher than anticipated.[5] This led to a shift in rate expectations, with fed-funds futures reflecting traders’ growing view that the Fed’s benchmark rate target will get to 5%-plus by May.[6]

Powell said the labor market is “extraordinarily strong” and that the Fed is committed to bringing down inflation.[7] If labor data remain strong and inflation rises further, the Fed may need to increase rates higher than initially anticipated, he stated.

Neel Kashkari, President of the Minneapolis Federal Reserve, informed Bloomberg News that the robust jobs report demonstrated that the Federal Reserve’s task is still incomplete.[8] He maintained his opinion that rates should rise to approximately 5.4 percent.[8]

Overall, investors are anticipating that the Fed will need to continue raising interest rates in order to bring inflation down to its 2% target.[9] If economic data continues to come in hot, the Fed may have to raise rates more than currently priced in. This could have significant implications for the US economy and markets, and investors will be watching for any further updates from the Fed.

0. “Stock market news live updates: Stocks give up gains, close lower amid more earnings” Yahoo News, 9 Feb. 2023, https://news.yahoo.com/stock-market-news-live-updates-february-9-2023-123928495.html

1. “Powell Reasserts “Tighter for Longer”” Real Vision, 8 Feb. 2023, https://www.realvision.com/shows/daily-briefing/videos/powell-reasserts-tighter-for-longer-AlDe

2. “S&P 500, Nasdaq, Dow slump again as Fed concerns linger (SP500)” Seeking Alpha, 9 Feb. 2023, https://seekingalpha.com/news/3934464-sp-500-nasdaq-dow-slump-again-as-fed-concerns-linger

3. “S&P 500 Flashes Bullish Golden Cross On Powell Inflation Control; Apple, Microsoft Show Healthy Pullbacks” Investor’s Business Daily, 7 Feb. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-falls-market-awaits-powell-test-for-next-run-apple-microsoft-set-up-in-healthy-pullback

4. “Markets Rise on Powell’s Inflation Comments” Investopedia, 7 Feb. 2023, https://www.investopedia.com/markets-rise-on-powell-inflation-comments-7106935

5. “Americans will see ‘significant decline in inflation’ in 2023: Powell” Business Insider, 7 Feb. 2023, https://www.businessinsider.com/when-will-inflation-go-down-significant-decline-this-year-powell-2023-2

6. “The Fed, Biden using the ’70s inflation ‘playbook’ to solve supply problem, market expert says” Fox Business, 8 Feb. 2023, https://www.foxbusiness.com/economy/fed-biden-using-70s-inflation-playbook-solve-supply-problem-market-expert-says

7. “Fed says more interest rate rises needed to cool inflation” The Guardian, 7 Feb. 2023, https://www.theguardian.com/business/2023/feb/07/fed-jerome-powell-interest-rates-inflation

8. “Fed’s Powell speaks on economy, job market” The Washington Post, 7 Feb. 2023, https://www.washingtonpost.com/business/2023/02/07/powell-economy-jobs/

9. “Stock Market Today: Volatility Picks Up After Powell Comments” Kiplinger’s Personal Finance, 7 Feb. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-020723-volatility-picks-up-after-powell-comments