Federal Reserve Chairman Jerome Powell will be in the spotlight this week as he testifies before Congress.[0] Investors will be closely watching his testimony, as they search for clues about future rate hikes.[1] Powell is expected to speak about the current state of inflation and the need for Congress to raise the debt ceiling.
Powell appeared before the Senate Banking Committee on Tuesday, and made hawkish comments that suggest an inclination to keep rates higher, not lower.[2] He noted that inflation has been moderating in recent months, but the process of getting inflation back down to the central bank’s 2% target has a long way to go and is likely to be bumpy.[3]
The Fed has raised its benchmark rate to more than 4.5%, the highest rate since 2007, responding to prices rising at the fastest pace in decades. Over the course of the last 12 months, the Federal Reserve has increased interest rates by 4.5%.
The yield on the 10-year Treasury note rose to 3.981%, up from 3.962% as of late Friday. The yield on the 30-year Treasury bond climbed to 3.911% from 3.886% late Friday. The yield on the 2-year Treasury note advanced to 4.892% on Monday at 3 p.m. The Eastern rate increased to 4.876%[4] Prices move in the opposite direction to yields.[4]
The Federal Reserve had estimated that it would raise the rate to between 5% and 5.5%, and keep it at that level until 2024. However, due to the quicker economic growth, the policy makers may choose to raise the benchmark rate even further than initially expected.
On Tuesday, the main stock indices dropped following Powell’s comments.[5] The Dow Jones Industrial Average decreased by over 500 points, representing a decline of 1.5%; the S&P 500 and Nasdaq saw drops of more than 1% each.[2]
The Federal Reserve, under Chairman Powell, has reiterated that the benchmark interest rate will remain high until inflation reaches the objective of 2%.[5] This results in greater expenses for borrowers when taking out loans for cars, credit cards, and mortgages.[5]
Meanwhile, Powell told lawmakers that the consequences of not raising the debt limit “are hard to estimate, but they could be extraordinarily adverse and could do long-standing harm.”[6] He added that “Congress really needs to raise the debt ceiling. That’s the only way out.
0. “Fed Chair Powell in congressional hot seat as sticky inflation squeezes Americans” Fox Business, 7 Mar. 2023, https://www.foxbusiness.com/economy/fed-chair-powell-congressional-hot-seat-sticky-inflation-squeezes-americans
1. “What to watch as Fed Chair Powell testifies before Congress” CNN, 7 Mar. 2023, https://www.cnn.com/2023/03/07/investing/premarket-stocks-trading/index.html
2. “Stock Market Today: Dow Plunges After Powell Remarks” Barron’s, 8 Mar. 2023, https://www.barrons.com/livecoverage/stock-market-today-030723
3. “Fed’s Powell tells senators rate hikes could go higher, come faster” Roll Call , 7 Mar. 2023, https://www.rollcall.com/2023/03/07/feds-powell-tells-senators-rate-hikes-could-go-higher-come-faster/
4. “‘Buckle up’: Treasury yields edge near 4% as Powell testimony, jobs data loom” MarketWatch, 6 Mar. 2023, https://www.marketwatch.com/story/buckle-up-treasury-yields-extend-pullback-from-highs-as-powell-testimony-and-jobs-data-loom-78935ae1
5. “US debt default could cause ‘longstanding harm,’ Fed Chair Jerome Powell says” ABC News, 7 Mar. 2023, https://abcnews.go.com/Politics/us-debt-default-cause-longstanding-harm-fed-chair/story?id=97665681
6. “Fed may need more aggressive interest rate hikes, Powell says” The Washington Post, 7 Mar. 2023, https://www.washingtonpost.com/business/2023/03/07/fed-powell-hill