Federal Reserve Chair Jerome H. Powell testifies before a U.S. Senate Banking, Housing, and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress” on Capitol Hill in Washington, March 7, 2023.
Kevin Lamarque | Reuters
The U.S. Federal Reserve cannot disrupt its cycle of interest rate increases until the nation enters a recession, according to TS Lombard Chief U.S. Economist Steven Blitz.
“There is no exit from this until he [Fed Chair Jerome Powell] does create a recession, ’til unemployment goes up, and that is when the Fed rates will stop being hiked,” Blitz told CNBC’s “Squawk Box Europe” on Wednesday.
He stressed that the Fed lacks clarity on the ceiling of interest rate increases in the absence of such an economic slowdown.
“They have no idea where the top rate is, because they have no idea where inflation settles down without a recession.”
Powell told lawmakers on Tuesday that stronger-than-expected economic data in recent weeks suggests the “ultimate level of interest rates is likely to be higher than previously anticipated,” as the central bank looks to drag inflation back down to Earth.
The Federal Open Market Committee’s next monetary policy meeting on March 21 and 22 will be critical for global stock markets, with investors closely watching whether policymakers opt for an interest rate hike of 25 or 50 basis points.
Market expectations for the terminal Fed funds rate were around 5.1% in December, but have risen steadily. Goldman Sachs lifted its terminal rate target range forecast to 5.5-5.75% on Tuesday in light of Powell’s testimony, in line with current market pricing according to CME Group data.
Bond yields spiked, and U.S. stock markets sold off sharply on the back of Powell’s comments, with the Dow closing nearly 575 points lower and turning negative for 2023. The S&P 500 slid 1.53% to close below the key 4,000 threshold, and the Nasdaq Composite lost 1.25%
“There’s going to be a recession, and the Fed is going to…
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