Topline
Federal Reserve chairman Jerome Powell said Wednesday nearly all central bank officials agree more interest rate increases will be “appropriate,” dampening Wall Street’s hopes of a Fed pause.
Key Facts
“It will take time… for the full effects of monetary restraint to be realized, especially on inflation,” Powell said in prepared remarks released ahead of his testimony before Congress beginning at 10 a.m. ET.
Powell cited expectations that inflation will remain “well anchored” above the Fed’s long-held 2% target; inflation hit a two-year low of 4% last month.
Stock futures were down moderately immediately after the comments were released, as the Dow Jones Industrial Average, S&P 500 and tech-heavy Nasdaq each slipped about 0.3%.
Key Background
The federal funds rate, which helps set the rate at which banks can lend to each other and impacts all borrowing costs from mortgages to student loans, is 5% to 5.25%. That’s five percentage points higher than it was in the two years ending March, after the Fed bumped rates at 10 consecutive meetings of its policy-setting panel. The Federal Open Markets Committee decided not to hike rates at its meeting last week, which some hoped signaled the end of the tightening cycle.
What To Watch For
How stocks will respond following further increases to interest rates. In the three most recent instances in which the Fed paused hikes in a tightening cycle before resuming increases, the S&P rose 19% in the 12 months following the first pause.
Crucial Quote
“The easy part of reducing inflation is over, which was the transitory part that had to do with energy prices and supply-related bottlenecks from the pandemic,” Bank of America analysts led by Vadim Iaralov wrote in a Wednesday note to clients. “What remains is much more difficult to reduce in our view, as it has to do with the very tight labor markets and would require an actual landing of the economy.”
Fed Pauses Interest Rate Hikes For First Time In Over A Year—But Signals More May Still Come (Forbes)
Dow Tanks 250 Points—And Some Experts Warn More Pain May Be On Deck (Forbes)
Here’s How Stocks Performed After The Fed Stopped Hiking Rates In The Past (Forbes)
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