by Circle Squared Alternative Investments CEO Jeff Sica joins “Varney & Co.” share his market outlook and break down his predictions on how the Federal Reserve will handle future rate hikes.
Federal Reserve Chairman Jerome Powell will be in the spotlight on Capitol Hill this week as he faces the central bank’s Herculean task: Fighting inflation with the sharpest interest rate hikes since the 1980s without pushing the US economy into recession. economic recession.
Powell is scheduled to appear before the Senate Banking Committee on Tuesday and before the House Financial Services Committee a day later as part of his semi-annual testimony on monetary policy.
“The committee is strongly committed to returning inflation to its 2% objective,” the Fed said in the report to Congress released on Friday. The nation’s central bank indicated that “continued increases in the target range will be appropriate to achieve a sufficiently restrictive monetary policy stance.”
Central bankers are in the midst of their most aggressive campaign since the 1980s to drive persistently high inflation. Although the consumer price index has fallen slowly from the peak of 9.1% noted in June, it is still about three times higher than the pre-pandemic average.
SIGNS OF FUTURE INTEREST RATE RAISES NEEDED TO FIGHT STICK INFLATION
Federal Reserve Chairman Jerome Powell attends a news conference on September 21, 2022, in Washington, DC (Chen Mengtong/China News Service via Getty Images/Getty Images)
Markets are watching Powell closely for clues about what’s to come in the Fed’s inflation fight — including how much higher officials plan to raise rates and what they need to see before stopping. the increases.
Officials vote in February to raise the benchmark interest rate by a quarter of a percentage point to a range of 4.5% to 4.75% and indicated that “a few more” increases are on the table this year. That followed a half-point rise at their December meeting and four consecutive 75-point base moves before that.
The Fed’s rate-setting committee meets later this month.
Markets widely expect the Fed to continue raising rates at a quarter-point pace, but economic data reports have been hotter than expected in recent weeks – including January blowout job report and disappointing inflation data that showed the pervasiveness of high consumer prices — have raised a higher peak rate or steeper increases.
INFLATION STILL LOWER ON WAGES IN MOST US CITIES
Jerome Powell, Chairman of the Federal Reserve (Liu Jie/Xinhua via Getty Images/File/Getty Images)
The Department of Labor reported in February that the consumer price index rose 0.5% in January, the most in three months. The annual inflation rate also surprised the upside at 6.4%.
The data prompted some traders to re-examine their rate hike expectations for the year, with growth on the way number of investors now betting the Fed could raise rates higher than previously anticipated. About 33% of traders expect the Fed to raise the federal funds rate another 75 basis points by the end of the year, and 64% expect rates to rise 50 basis points, according to data from the CME Group’s FedWatch Tool.
Since then, Fed officials have acknowledged that rates may need to go higher than expected and stay elevated for longer amid signs that inflationary pressures within the economy remain strong.
“I want to be absolutely clear: There is a case to be made that we must go higher,” Atlanta Fed President Raphael Bostic told reporters Thursday. “Jobs have come in stronger than we expected. Inflation is still stubbornly at elevated levels. Consumer spending is strong. Labor markets are still relatively tight.”
People walk near the US Treasury building in Washington, DC, December 30, 2022. (Ting Shen/Bloomberg via Getty Images/Getty Images)
But as the Fed faces persistently high inflation and the looming threat of recession, Powell is also increasingly skeptical that he can successfully guide the central bank through one of the most challenging economic periods since the 1970s to achieve a “soft landing”.
Republicans are expected to question Powell – who classified inflation as temporary two years ago and is likely to end soon – for misjudging the price spike and urging him to continue tightening monetary policy. The GOP will also likely try to get Powell to agree that President Joe Biden and the Democrats are responsible for the cost-of-living crisis because of the trillions in COVID-19 relief money and other spending packages passed in 2021 and 2022.
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Powell usually avoids the political bear traps.
Meanwhile, Democrats are likely to press Powell to put workers first, even as the Fed tries to bring inflation closer to its 2% target. Floating interest rates typically lead to higher rates on consumer and business loans, which slows the economy by forcing employers to cut spending. Higher borrowing costs are already putting more pressure on consumers mortgage ratescredit card fees and car loans.
