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Introduction: Hawkish Jerome Powell rattles marketsUS Federal Reserve indicates increase in interest rates as inflation risesLast night: Powell signals March rate hike is comingAsian shares fall to lowest in 15 months after US Fed nails on March rate riseUK car production slumps to lowest level since 1956Tesla sees record profit as electric car deliveries soar
Deutsche Bank’s US economists now expect the Fed to raise US interest rates five times this year, one more than their previous base case.
Strategist Jim Reid explains:
The biggest takeaway was the Chair’s emphasis that this cycle was different from the last round of tightening, in that inflation is well-above target, the labour market is historically tight, and growth projections remain above long-run potential.
While the Chair demurred when asked what that specially meant for parameters of monetary policy, he did not rule out a faster pace of rate hikes or larger increments, adding that the Fed had plenty of room to tighten given the state of the labour market.
We read Fed Chair Powell’s comment that this cycle is different from the previous one as an indication that the Fed’s bias is for a steeper tightening than the markets and we had envisaged.
We have moved our call for this year to six 25bp hikes from four previously and now expect the fed funds target range at 2.25-2.50% at end-2023, 25bp higher than we had previously forecast.
