The markets rallied with the publication of the transcript of Powell’s speech on the banking committee.
Powell, who wore the hawk shirt again with the inflation data that came above the expectations in January, gave a message to the markets that the interest rate hikes would continue.
Powell’s statements that the final interest rate target may exceed the previous estimates also fueled concerns about rate hikes.
Powell’s hawkish speech caused Bitcoin to fall as low as $21900, while the dollar index rose above the 105 level again.
After Powell’s statements, FED fund futures started to price a 50 basis point rate hike in March.
“January data on employment, consumer spending, manufacturing output and inflation partially reversed the easing trends we saw up until a month ago.
This turnaround indicates that the inflationary pressures assessed during our previous Federal Open Market Committee (FOMC) meeting were higher than expected.
From a broader perspective, inflation has declined slightly since mid-last year, but remains well above the FOMC’s long-term target of 2 percent.
With inflation well above our long-term target of 2 percent and the labor market remaining extremely tight, the FOMC continued to tighten its monetary policy stance, raising interest rates by 4-1/2 percentage points over the past year.
We continue to anticipate that continued increases in the federal funds rate target range will be appropriate to achieve a stance of monetary policy restrictive enough to bring inflation back to 2 percent over time. We are also continuing the process of significantly reducing the size of our balance sheet.
The Board slowed down the rate of increase in interest rates in its last two meetings. We will continue to make our decisions at meetings, taking into account all the incoming data and their reflections on the economic activity and inflation outlook.
Although inflation has slowed in recent months, the process of bringing inflation back to 2 percent has a long way to go and is likely to be ups and downs.
As I mentioned, the latest economic data came in stronger than expected, suggesting that the final level of interest rates could be higher than previously anticipated.
If all the data were to show that faster tightening was necessary, we would be ready to accelerate the pace of rate hikes. Restoring price stability will likely require us to maintain a restrictive monetary policy stance for a while.”