If the data should indicate the need for a faster tightening, “we are ready to accelerate the rate of hikes”, added the Fed chairman, paving the way for a possible new increase of 0.50% in the cost of money at the next meeting of the 21 and 22 March
In a Senate hearing, the Fed chairman reaffirmed the central bank’s unconditional commitment to bring prices down to the 2% target. Jerome Powell therefore opened the door to an acceleration in interest rate hikes to combat inflation that won’t let go and this move has been a cold shower for the stock markets. The price fight will likely translate into higher than expected borrowing costs at the end of the bull cycle. And yesterday the European financial centers all closed in the red.
“The fight against inflation is still long”
In the face of data that showed an economy more resilient than expected, “the final level of interest rates will probably be higher than previously expected,” Powell told US senators. If the data should indicate the need for a faster tightening “we are ready to accelerate the speed of the hikes”, he added, paving the way for a possible new increase of 0.50% in the cost of money at the next meeting on 21 and 22 March . Much will depend on the upcoming labor market data, due on Friday, and the inflation data due next week. “In the last year we have opted for strong actions, we have come a long way” in fighting inflation, Powell explained to the Senate, reiterating that the price stability to which the Fed aspires is essential for solid and sustainable growth and “will probably require maintaining a tight monetary policy for some time. We will continue until the job is done.” Despite the progress made, the fight against inflation is not over yet: “there is still work to be done”, “the road is long and bumpy”, he warned anyway. To those who pressed him on the Fed’s role in the event of a failure to raise the debt ceiling and, therefore, a US default, Powell replied: Congress must “raise it, it’s the only solution”: not doing so would have “adverse” consequences “.
The prospects
Failure to act – warned Mark Zandi, chief economist at Moody’s Analytics – would slide the US economy into recession and cause the loss of seven million jobs, in a 2008-style crisis. The prospects are not good, according to Zandi, not even if Joe Biden had to give in to pressure from Republicans on spending cuts to avoid default. Doing so would result in 2.6 million job losses and a recession in 2024.
Source-tg24.sky.it