According to Bloomberg News, Federal Reserve Chair, Jerome Powell stated that the central banks might increase interest rates later in March so that hot inflation can be tamed amidst a labor market that is tight and while the ongoing invasion of Russia of Ukraine makes things uncertain in the US outlook.
Powell stated that the condition in the labor market is very tight, which is a signal sending out to the lawmakers that the central bank was able to meet the maximum employment target under prevailing conditions, which throws the doors open for tackling inflation. He said that the employers were finding it difficult to fill the vacant positions while workers were leaving their current jobs to work for better prospects, pushing the wages to rise the fastest in many years.
Uncertainty rules
Financial markets have been reeling ever since Russia initiated the invasion of Ukraine, causing the price of energy to skyrocket amidst growing tensions that cast an uncertain shadow on growth across the globe. The interest rate futures markets for a quarter-point interest rate increase are fully priced at the meeting on March 15th-16th, from the current levels being close to zero and with many Fed officials talking about invasion but have said that there is still inclined to act.
Bloomberg News reports that Powell’s remarks have done little to alter the market convictions. The interest rate futures have continued to price about five rate increases in 2022 beginning this month. The hike in March will mark the first hike in rates since 2018. The yields from US Treasury dropped a little following Powell’s remarks.
He warned, however, that in the near-term, the effects on the economy of the US, following the ongoing efforts of Russia’s invasion of Ukraine, the ongoing war, related events, sanctions, and other events that are yet to come are not sure yet.
No fixed timing
As far as giving a time is concerned, the Federal Chair did not provide any specific time related to balance-sheet reduction. This is likely a decision that remains on hold for the Federal Open Market Committee. Following rate increases, trimming assets will follow a predictable pattern by making appropriate adjustments to the reinvestments.
The preferred gauge of price of the Fed increased at 6.1% at an annual pace in January, which is three times the 2% target of the central bank. According to tallied estimates by Bloomberg, demand continues to stay strong, and the growth forecasts revolve around 2.9% in the current year.
Bloomberg News reports that the Federal Reserve’s intention of removing emergency support for the pandemic, coupled with the invasion of Ukraine, has impacted the financial markets. The S&P500 dropped by 9.6% in the current year. The 10-year yields of Treasury dropped sharply of late, indicating investors’ perceived risks in growth as they seek security.
