Full story: US Federal Reserve indicates increase in interest rates as inflation rises
The Federal Reserve is preparing to raise rates in March for the first time since the coronavirus pandemic struck the US as it attempts to curb rising prices.
After its latest two-day meeting the central bank announced that it would leave interest rates close to zero for now but signaled it was preparing to raise them at its next meeting.
At a press conference, Fed chair Jerome Powell said the central bank would continue to monitor the course of the pandemic, inflation and unemployment but gave his clearest signal yet that the US’s historically low interest rates would start to rise soon.
“I would say the committee is of a mind to raise the federal funds rate at the March meeting assuming that conditions are appropriate for doing so,” said Powell.
“The economy no longer needs sustained monetary policy support.”.
The central bank cut rates to close to zero when the coronavirus pandemic hit the US in March 2020 and began pumping money into the economy by buying financial assets in order to stave off a potential financial collapse. At this week’s meeting, the Fed committee approved one final round of asset purchases, which will bring that stimulus program to a conclusion by March.
The Fed has a dual mandate: to maximize employment and to keep prices stable.
In recent months inflation has risen sharply to an annual rate of 7% and the unemployment rate has fallen back 3.9%, close to pre-pandemic levels. It has signaled for months that rate rises are coming in order to tamp down price rises and Powell said there was “quite a bit of room to raise interest rates without threatening the labor market”.
But the end of the Fed’s easy money policy has rattled investors.... Here’s the full story:
Wall Street closes lower
And finally, Wall Street has closed slightly lower, as Jerome Powell’s hawkish comments on US interest rates brought an end to today’s rally.
The Dow Jones industrial average of 30 large US companies ended the day 0.4% lower at 31,168 points, down almost 130 points today.
The broader S&P 600 index dipped by 0.15%, losing 6.5 points to end at 4,349.93.
The tech-focused Nasdaq Composite ended flat, having already fallen by over 13% so far this year.
U.S. stocks fell in volatile trading Wednesday after Fed Chairman Jerome Powell suggested the central bank has plenty of room to raise interest rates before it would harm the economy.
— CNBC (@CNBC) January 26, 2022
The Dow moved down 0.38%.
The S&P 500 dipped 0.15%.
The Nasdaq closed up 0.02%. pic.twitter.com/Oi5DPZWN7p
Yash Chauhan, analyst for Global Capital Markets for Validus Risk Management, says the Fed could raise US interest rates three or four times this year:
The FOMC statement seemed neutral triggering a rally in equities, and a muted reaction in the dollar and treasuries.
“However, yields rose and equities reversed all gains as Powell’s speech slowly took a hawkish turn after he mentioned that the US is in a “historically tight labor market’ and there is “quite a bit of room to move without hurting jobs”.
“Powell stopped short of sharing any timeline in terms of a rate hike and balance sheet reduction but signaled that the FOMC is open to raising rates in March.
“He also mentioned that they feel “communications with market participants are working” suggesting that the Fed is probably comfortable with what the market is pricing for the year.
“Overall, we are more hawkish after Powell’s speech and feel that 3-4 hikes this year is very much a possibility.”
- Powell main hawkish points: 1) Not ruling out raising rates at every meeting 2) Quite a bit of room to raise rates without hurting employment 3) Wages are rising at the fastest pace in years 1/2
— Yohay Elam (@forexcrunch) January 26, 2022
On that note, goodnight.
