The stock market turned positive after Federal Reserve Chairman Jerome Powell pledged in testimony before the Senate on Tuesday that the central bank wouldn’t hesitate to raise interest rates further than projected if higher inflation persists.
“If we have to raise interest rates more over time, we will,” Powell said.
Brendan Smialowski/Pool via ASSOCIATED PRESS
Key Facts
Powell, who is expected to win a second term as Fed chairman, faced questions at his Senate confirmation hearing about how the central bank will adjust monetary policy to combat inflation.
Though the economy is expanding at its “fastest pace in many years” and the labor market remains “strong,” according to the Fed chair, challenges like higher inflation and a “mismatch between supply and demand” still remain.
While Powell predicted that supply chain issues would normalize later this year, which should help ease inflationary pressures, he said that the Fed will not be afraid to raise interest rates further than projected if inflation remains high.
The Federal Reserve had previously signaled at its policy meeting last month that there would likely be three interest rate hikes this year, with the first coming as soon as March.
Stocks were lower ahead of Powell’s testimony—with the Dow Jones Industrial Average down as much as 250 points, but all three indexes pared back losses after his comments.
The Dow was flat by midday, while the S&P 500 and Nasdaq Composite both turned positive, rising 0.5% and 1.3%, respectively.
Crucial Quote:
“If we have to raise interest rates more over time, we will,” Powell said. “We will use our tools to get inflation back [to long-term targets]
Key Background:
Stocks have had a rocky start to 2022 after boasting stellar returns last year. After rising 27% in 2021, the benchmark S&P 500 index is down more than 3% so far in the first few weeks of this year. The Dow has fallen nearly 2% so far in 2022 meanwhile, while the tech-heavy Nasdaq is down nearly 6%.
Contra:
“I worry that the Fed’s extraordinary response to the crisis could become the new normal for monetary policy,” Senator Pat Toomey (R-Pa.), who supports Powell’s renomination, warned during the hearing. “I worry that the Fed’s new framework has contributed to the Fed being behind the curve as we see inflation running at a 39-year high.”
What To Watch For:
Corporate earnings season kicks off later this week, with many of the big banks starting to report financial results Friday.
Further Reading:
Stocks Plunge After Fed Minutes Show Central Bank Could Remove More Stimulus (Forbes)
10 Great Stock Picks For 2022 From Top-Performing Fund Managers (Forbes)
Federal Reserve Not Afraid To Raise Rates Further If Higher Inflation Persists, Powell Says
Topline
The stock market turned positive after Federal Reserve Chairman Jerome Powell pledged in testimony before the Senate on Tuesday that the central bank wouldn’t hesitate to raise interest rates further than projected if higher inflation persists.
“If we have to raise interest rates more over time, we will,” Powell said.
Key Facts
Powell, who is expected to win a second term as Fed chairman, faced questions at his Senate confirmation hearing about how the central bank will adjust monetary policy to combat inflation.
Though the economy is expanding at its “fastest pace in many years” and the labor market remains “strong,” according to the Fed chair, challenges like higher inflation and a “mismatch between supply and demand” still remain.
While Powell predicted that supply chain issues would normalize later this year, which should help ease inflationary pressures, he said that the Fed will not be afraid to raise interest rates further than projected if inflation remains high.
The Federal Reserve had previously signaled at its policy meeting last month that there would likely be three interest rate hikes this year, with the first coming as soon as March.
Stocks were lower ahead of Powell’s testimony—with the Dow Jones Industrial Average down as much as 250 points, but all three indexes pared back losses after his comments.
The Dow was flat by midday, while the S&P 500 and Nasdaq Composite both turned positive, rising 0.5% and 1.3%, respectively.
Crucial Quote:
“If we have to raise interest rates more over time, we will,” Powell said. “We will use our tools to get inflation back [to long-term targets]
Key Background:
Stocks have had a rocky start to 2022 after boasting stellar returns last year. After rising 27% in 2021, the benchmark S&P 500 index is down more than 3% so far in the first few weeks of this year. The Dow has fallen nearly 2% so far in 2022 meanwhile, while the tech-heavy Nasdaq is down nearly 6%.
Contra:
“I worry that the Fed’s extraordinary response to the crisis could become the new normal for monetary policy,” Senator Pat Toomey (R-Pa.), who supports Powell’s renomination, warned during the hearing. “I worry that the Fed’s new framework has contributed to the Fed being behind the curve as we see inflation running at a 39-year high.”
What To Watch For:
Corporate earnings season kicks off later this week, with many of the big banks starting to report financial results Friday.
Further Reading:
Stocks Plunge After Fed Minutes Show Central Bank Could Remove More Stimulus (Forbes)
10 Great Stock Picks For 2022 From Top-Performing Fund Managers (Forbes)
Source: https://www.forbes.com/sites/sergeiklebnikov/2022/01/11/federal-reserve-not-afraid-to-raise-rates-further-if-higher-inflation-persists-powell-says/