Dow falls 450 points as Powell’s hawkish tone in Congress raises concerns about rising rates

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“The latest economic data are stronger than expected, suggesting that the final level of interest rates is likely to be higher than previously expected,” Powell said. memorandum before the Senate Banking Committee on Tuesday morning. “If the data as a whole shows that a faster tightening is warranted, we would be ready to accelerate the pace of rate hikes.”

In February Federal Reserve Raises Federal Funds Rate by 25 Basis Points, a much slower pace after December’s 0.5-point move and last year’s four jumbo 75 basis point rate hikes. But Powell’s testimony to Congress on Tuesday suggests the Fed may consider raising the scale of the next rate hike to 0.5 percentage points again at its next policy meeting on March 21-22. bottom.

After Powell’s hawkish remarks, Fed fund futures traders see more than a 60% chance of a 50 basis point upside. According to the CME FedWatch toolTraders saw just a 30% chance of a half-point rate hike a day ago and a 3.3% chance a month ago. will be between

January jobs and inflation data have some investors betting it will rise to about 5.5%, or 6%, from the FOMC’s average December forecast of between 5% and 5.25%. . The revaluation caused the stock market to plunge last month as US Treasury yields rose.

look: US stocks fall as Fed Chair Powell testifies before Congress

“Unsurprisingly, Powell delivered a hawkish nuanced message in his testimony to Congress,” said Charlie Ripley, senior investment strategist at Allianz Investment Management, in an email.

“Some market participants may have been caught off-guard by Chairman Powell’s remarks, but the reality is that he’s largely affirming what bond markets have already priced in,” he said.

Policy Sensitive 2-Year Treasury Yields
TMUBMUSD02Y,
5.014%

It jumped to 5% on Tuesday afternoon. This was his highest intraday level since July 2007, according to Dow Jones Market Data. ICE USD Index
DXY,
+1.19%,
The currency’s measure against a basket of six major rivals rose 1.1% to 105.53, heading towards one of its highest levels since January.

“Powell has a great way of smoothing out rough spots,” said Steve Sosnick, chief strategist at Interactive Brokers. I think people were taken aback by his sheer hawkishness rather than his comment that he could.
IBKR,
-0.26%,
said in a telephone interview.

While some investors may be “comfortable” that the storyline will be a gradual easing of interest rates, Sosnick said Powell’s stance is a reflection of the “data It is very consistent with dependence,” he said. That makes the figures revealed in the February jobs report all the more urgent, he said.

look: What Stock Market Investors Want to Hear When Fed Chairman Jerome Powell Testifies in Congress This Week

Powell will also take questions from the House Financial Services Committee on Wednesday.

Semi-annual testimony takes place on Friday, a few days before the February employment report.added economy 517,000 jobs in January, Disappointing and contains other recent data January printing higher than expected For the Federal Reserve’s favorable inflation data.

Economic data to be released on Tuesday included January wholesale inventories, It fell for the first time since mid-2020. The figure is in line with economists’ estimates surveyed by The Wall Street Journal, which show companies are shrinking the amount of unsold merchandise to meet softening consumer demand. Consumer credit report for January will be released at 3 p.m.

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— Jamie Chisholm contributed to this article