Federal Reserve Chair Jerome H. Powell testifies before a House Financial Services hearing on “The Federal Reserve’s Semi-Annual Monetary Policy Report” on Capitol Hill in Washington, U.S., March 8, 2023.
Kevin Lamarque | Reuters
Federal Reserve Chairman Jerome Powell’s prepared speech this week to Congress took just a few minutes, but it changed everything.
In those remarks, the central bank leader set out a new paradigm for how the Fed views its policy path, one that apparently will see even higher interest rates for a longer period of time than previously thought.
The aftermath has forced the market, which long had been looking for the Fed to blink in its inflation fight, to recalibrate its own views to coincide more with policymakers who have been warning about a higher-for-longer approach to interest rates.
“We have clearly had a choreographed chorus of Fed speakers for two weeks that was getting us to that place,” said Art Hogan, chief market strategist at B. Riley Wealth Management. “It took Jay Powell, over the course of a very brief prepared statement and a Q&A, to get those expectations cemented into a higher place.”
As part of his mandated semiannual testimony on monetary policy, Powell spoke Tuesday before the Senate Banking Committee then the day after to the House Financial Services Committee.
Heading into the appearances, markets had been looking for the Fed to raise its benchmark interest rate by 0.25 percentage point at its meeting later this month, then perhaps two more moves before stopping, with the end point around 5.25%.
That changed after Powell’s appearance, during which he cautioned that if inflation data remains strong, he expects rates to go “higher than previously anticipated” and possibly at a faster pace than a quarter point at a time.
Markets now strongly expect a half-point increase in March and the peak, or terminal rate, to hit close to 5.75% before the Fed is finished.
When the facts change
So what changed?
Basically, it was the January…
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