Powell: US Interest Rates May Increase More Than Expected

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Facts

• On Tuesday, US Federal Reserve (Fed) Chair Jerome Powell indicated that the Fed may increase the size of its interest rate hikes and borrowing costs to higher-than-projected levels if the economy continues to be robust amid persistently high inflation.¹
• Speaking before the Senate Banking Committee, Powell said that the latest economic data was “stronger than expected” and that the central bank will have to do more to counter inflation.²
• While inflation is down to 6.4% from June's high of 9.1%, Powell said that bringing inflation back down to its goal of 2% “has a long way to go.”¹
• Powell was questioned from both sides as Democratic senators called attention to the Fed's projections that hiking rates could increase the unemployment rate from 3.4% to 4.6% by the end of 2023. Meanwhile, Republicans primarily attributed inflation to Pres. Joe Biden’s spending.¹
• The stock market reacted negatively to Powell’s comments, with the Dow Jones shedding around 570 points, or 1.72%, and the S&P 500 losing 1.53%. As the stock indexes tumbled, the two-year Treasury Yield hit a 16-year high of 5%.³
• Powell’s testimony is part of the Fed’s two-day semiannual monetary policy report to Congress, and Powell will appear before the House Financial Services Committee on Wednesday.⁴

Sources: ¹Associated Press, ²USA Today, ³CNBC and ⁴FOX News.

Narratives

• Pro-establishment narrative, as provided by New York Times. Fed Chair Jerome Powell is doing his best to navigate a murky financial situation as the economy remains hot amid high inflation. While some may criticize him for not sticking to an exact plan, he's keeping his options open to make the best decisions as new data continues to emerge. While markets and consumers alike want security, the Fed must remain flexible to tackle an evolving financial landscape.
• Establishment-critical narrative, as provided by Zerohedge. The Fed is trying to correct its own mistakes, but it's too late. It printed an exorbitant amount of money in a very short time and pumped it into the economy at the first sign of distress. Now the Fed is trying to reverse course and tighten monetary policy too much. Central Banks are in a difficult situation of their own making, and the forecast isn’t pretty.

Predictions