NEW YORK (Reuters) – Federal Reserve Chair Jerome Powell on Wednesday reaffirmed his message of higher and potentially faster interest rate hikes, but emphasized that debate was still underway and a decision would hinge on data still to be issued before the U.S. central bank’s policy meeting in two weeks.
“If – and I stress that no decision has been made on this – but if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell told the U.S. of Representatives Financial Services Committee in testimony that added a cautionary clause to the otherwise identical message he delivered to a Senate committee on Tuesday.
MARKET REACTION:
STOCKS: S&P 500 was up 8.72 points, or 0.22%, to 3,995.09 BONDS: U.S. Treasury 10-year note was last up 7/32 with a yield 3.9481%, off from 3.975% late on TuesdayFOREX: The euro was off 0.01% and the dollar index was also steady
COMMENTS:
JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL, CHICAGO
“Now investors fear the Fed is going to overdo it, tighten too much. We’ve got the biggest inversion in over 40 years and this has called a recession every single time over the last seven times. If you look at small business sentiment, you look at consumers, clearly we are headed lower, economic growth is headed pretty low and with it likely inflation and my frustration is the Chairman is riding a bicycle and looking down at his pedals and not over the handles bars. The fact is there is a long history between rate hikes and subsequent declines in inflation, economic growth, earnings and everything else and unfortunately it takes 18 months to three years. If he is raising 50 basis points on a February number, he is shortsighted at best and investors share my concerns.
“If you look back at history between the peak of the fed funds rate and the subsequent peak in the unemployment rate you have to wait like three years. Unfortunately, the jobs market that we are reacting to right now is really a reaction to last March’s fed funds rate not this March’s fed funds.
“It is like if you are in the shower and you’re turning the hot water on but it takes a while to come through the nozzle, if you are turning the hot water on and it is still cold and you keep turning that dial, eventually you are going to burn yourself and I’m afraid the Fed is going to burn us.”
VICTORIA SCHOLAR, HEAD OF INVESTMENT, INTERACTIVE INVESTOR, LONDON
“We’re seeing a bit of a lackluster session. Perhaps there was a bit of a kneejerk reaction and markets are trying to claw back some of (Tuesday’s) losses. And just maybe the selling was a bit overdone.”
“Friday’s jobs report is probably going to be one of the most important non-farm payrolls report we’ve had for a while, just because of the implications for Fed policy in March.
“I’ll be paying close attention to the US jobs report; if the report is very strong and wage growth is also strong, then a 50 basis point move would be more likely. So it’s almost the case of good economic news is bad news for the market.”
“If the economy looks as though it’s still robust with tightness in the labor market, then the Fed will take this as a sign to take more aggressive action as though the economy is kind of strong enough to take it.”
PETER TUZ, PRESIDENT, CHASE INVESTMENT COUNSEL, CHARLOTTESVILLE, VIRGINIA
“(Powell has been) pretty adamant, he dashed hopes that we were near the turning point where the Fed was close to pausing rates.”
“‘Higher for longer’ is the mantra that’s going to continue, at least to the end of the week until the (February employment report) data, which could pour gasoline or water on it.”
(Compiled by the Global Finance & Markets Breaking News team)
