Stocks Slide As Fed Chair Powell Says More Severe Rate Hikes On Deck

Topline

In a semiannual report to Congress beginning Tuesday at 10 a.m., Federal Reserve Chair Jerome Powell said the central bank will continue to up the temperature on what is already their most aggressive tightening campaign in decades.

Powell takes the stand Tuesday.

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Key Facts

Powell’s testimony to the Senate’s banking, housing and urban affairs committee is expected to include a status report on the effectiveness of the Fed’s decision to hike interest rates to a 16-year high in order to combat inflation.

The target federal funds rate, which determines the lending rate between banks and strongly influences borrowing costs nationwide, was 4.5% to 4.75% on Tuesday, with yet another increase expected later this month.

Stocks slid soon after Powell took the stand, with the Dow Jones Industrial Average, S&P 500 and tech-heavy Nasdaq each losing more than 0.5%.

“We will stay the course until the job is done,” Powell said in prepared remarks, saying the Fed is willing to maintain a “faster” pace of rate hikes than previously expected.

“Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time,” according to Powell.

Crucial Quote

“Core inflation has come down but nowhere near as fast we might have hoped and it has a long way to go,” Powell said Tuesday.

What To Watch For

Powell’s report to Congress continues on Wednesday, when he testifies before the House.

What We Don’t Know

It’s unclear when the Fed will stop raising rates, but analysts at Goldman Sachs and Bank of America added another rate hike to their forecasts after a hotter-than-expected inflation reading last month. They now expect the central bank will raise rates to a top level of 5.5%, which would mark the highest level since the turn of the millennium. “Markets are admitting the Fed may not be close to done,” Sevens Report founder Tom Essaye told clients in a note of the stock market’s recent weakness.

Surprising Fact

The futures market now prices a 50 basis-point hike to the federal funds rate as the most likely outcome following the Fed’s March 22 meeting, according to the CME FedWatch Tool. The Fed last hiked rates by 25 basis points.