Fed Chair Jerome Powell rocks markets with interest rate talks

Wall Street was already convinced that higher rates than originally thought were on the way and that the Fed could potentially return to even bigger hikes after last month’s data reports.

Since receiving last month’s Blowout Jobs report and other surprisingly strong data, Wall Street has largely abandoned hopes that seeped earlier this year of a possible rate cut later in 2023. She also raised her forecast of how high the Fed will eventually set rates before they hold.

Powell's comments unsettled Wall Street.

Powell’s comments unsettled Wall Street.Credit:Bloomberg

This was most evident in the bond market, where the 10-year Treasury yield exceeded 4 percent last week, hitting its highest level since November. It helps set interest rates on mortgages and other major loans.

On Tuesday, following Powell’s comments, it again approached 4 percent before falling back to 3.96 percent where it was late Monday.

The two-year yield, which is moving closer to the Fed’s expectations, climbed to 4.94 percent from 4.87 percent, near its highest level since 2007.

Traders now see roughly equal odds that the next Fed rate hike will either be another 0.25 percentage point move or it will accelerate back to 0.50 percentage point. Just a day earlier, they had bet on about a two-in-three chance of the smaller surge, according to data from CME Group.

More fireworks could arrive later this week and next as the Fed gets more data points that will surely help shape its decision making ahead of its next rate meeting later this month.

The US government’s monthly jobs report is coming out on Friday. Most attention will be focused on how high wages are for workers. The Fed fears that excessive earnings could lead to more upward pressure on inflation.

Then two reports next week will provide information on how high inflation remains at both the consumer and wholesale levels.


The big shifts among investors about where inflation and the Fed are headed have led to violent moves in the markets. In January, equities rallied and bond yields fell on hopes that inflation would cool and prompt the Fed to ease interest rates. Then last month’s flurry of strong data dashed those expectations, sending stocks down and bond yields soaring.

On Tuesday on Wall Street, WW International, better known as WeightWatchers, surged after it announced it would enter the prescription weight-loss business by acquiring telemedicine platform Sequence. WW is paying $106 million (US$161 million) for Sequence, which served approximately 24,000 members in the United States as of February.

WW shares rose 42.4 percent.

Stock markets abroad were mixed.

https://www.smh.com.au/business/markets/asx-set-to-fall-as-fed-chief-rattles-wall-street-20230308-p5cq8s.html?ref=rss&utm_medium=rss&utm_source=rss_business Fed Chair Jerome Powell rocks markets with interest rate talks

Brian Lowry

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