Powell Warns Fed Could Get Aggressive With Rates Hikes Again

Persistent signs of inflation are forcing the Federal Reserve to contemplate more aggressive rate hikes.

Higher and Faster

The Fed may not have tamed inflation just yet.

Federal Reserve Chair Jerome Powell announced today that the central bank was likely to raise federal interest rates higher than previously thought, and at a faster pace than initially believed, due to signs of persistent inflation in the U.S. economy. 

“Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell told the Senate Banking Committee. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

The Federal Reserve began hiking rates in March 2022, raising them from 0% to the 4.50% to 4.75% range within a year. After a series of 75 basis point hikes, the central bank decided to only raise rates by 50 basis points in December and 25 basis points in January, signaling a potential cooldown in pace. Powell’s comments, however, indicate that the Federal Reserve is ready to potentially become aggressive in its approach once again. 

Markets only mildly reacted to the news. At the time of writing, the DXY is up 0.98%, while the S&P500 is down 0.96%, the Nasdaq 0.63%, and the Dow 0.90%. BTC and ETH are holding well, with the top cryptocurrency having only slid by 0.45%, and the top smart contract platform by 0.49%. 

Disclaimer: At the time of writing, the author of this piece owned BTC, ETH, and several other crypto assets.