Powell returns hawkish: the Fed ready to tighten rates scares the stock exchanges

Jerome Powell plays the role of hawk. The Federal Reserve will probably have to raise the cost of borrowing to a higher level than previously estimated. “The latest economic data has been stronger than expected, suggesting that the final level of interest rates will likely be higher than previously expected,” the US president said in remarks prepared for today’s hearing before the Committee. bank of the US Senate.

The Fed launched a vigorous and rapid monetary tightening a year ago, bringing rates in the range between 4.5 and 4.75%, the highest level since September 2007. The goal is to bring inflation back to 2%, but at the moment it seems far away in the light of the new acceleration in prices in recent months and a labor market still in great health, despite the waves of layoffs implemented by the technological giants. In January, the consumer price index slowed down to 6.4%, but the drop was less than analysts’ expectations.

“Should the totality of the data indicate that faster tightening is warranted, we would be poised to ramp up the pace of rate hikes,” Powell said. “For price stability it will be necessary to maintain a restrictive policy for some time”, he added, underlining that a process of continuous rate hikes is “appropriate” to bring inflation back to the 2% target, which remains ” very far”.

The market had expected the Fed to hike interest rates by 0.25% at its next meeting in March, but Powell’s warnings prompted some traders to bet on a 0.5% hike. The final decision will probably depend on the numbers on US employment and inflation in February, which are expected to be communicated in the next few days.

Markets reacted sharply to Powell’s statements. The yield on the two-year T-Bond reached its highest level since 2007, while the dollar strengthened against the other currencies: the euro, in particular, fell to 1.06 dollars. The Nasdaq technology index, the list most exposed to interest rates, fell 0.7%, the S&P 500 lost 0.9% and the Dow Jones was in the red by 0.8%. Piazza Affari also suffers, trading in a negative 0.6%.