How High Will Fed Raise Rates? Powell Fuels Fears Rates Could Hit 6%

Topline

One day after Federal Reserve Chair Jerome Powell caught investors off guard by striking a more hawkish tone than expected, the central banker is set to give the U.S. House additional details about how aggressively the Fed will push forward on its policy in the coming weeks, but economists have already raised their expectations for interest rate hikes to as much as 6%.

Key Facts

Powell’s testimony before the House Financial Services Committee begins Wednesday at 10 a.m. ET—just one day after his remarks before the Senate pushed the yield curve inversion to extreme levels and wreaked havoc on the stock market, resulting in one of the worst days of the year for major indexes.

Though investors hoped Powell would signal another quarter-point would likely come later this month, he instead signaled the Fed may accelerate the intensity of hikes for the first time since May, telling lawmakers he would be prepared to do so “if the totality of the data were to indicate that faster tightening is warranted.”

After the remarks, BlackRock investment chief Rick Rieder told clients “there’s a reasonable chance” the Fed will have to raise interest rates to 6% and keep them there for an “extended period” to slow the economy and get inflation back down to the historical target level of 2%.

Key Background

The Fed began raising rates last March as inflation reached a 40-year high, but expectations for the pace and intensity of incoming rate hikes have grown more aggressive amid repeatedly high inflation data. At the end of 2021, the Fed projected it would only need to raise rates to 3.1% to help tame rising prices. Its more recent forecast calls for rates to reach 5.1%, but on Tuesday, Powell acknowledged rates will “likely” end up “higher than previously anticipated.” The increases, which work to slow inflation by tempering consumer demand, have already sparked downturns in the housing and stock markets, and a growing number of experts worry the turmoil could ultimately spark a deep global recession.

This is a developing story. Please check back for updates.

Further Reading

Dow Falls Nearly 600 Points As Fed Chair Powell Warns More Severe Rate Hikes On Deck (Forbes)

Stocks Poised For Rally—But Don’t Expect It To Last (Forbes)

Dow Falls As Surprisingly Hot Inflation Data Threatens More Aggressive Fed Policy (Forbes)