Fed chair Powell’s remarks come on the heels of the United States’ most recent jobs report, which reported that 517,000 new jobs were created in January 2023.
Commenting on January’s strong jobs report, Powell stated:
“The labor market is incredibly strong, certainly stronger than anyone expected. The reality is if we continue to get strong labor market reports or higher inflation reports, it might be the case that we have to raise rates more (the January jobs report) shows why it will take a significant period of time (to slow domestic inflation). The labor market report underscores the message I sent during last week’s press conference. There’s been an expectation that inflation will go away quickly and seamlessly, but I don’t think that’s the case. It’s going to take some time.”
Despite the strong jobs report, Powell believes the moves they currently have planned should be sufficient to continue fighting inflation. Investors took Powell’s remarks as a positive, and markets rose rapidly, only to fall back down after Powell indicated in his Q&A session that more interest rate hikes may be needed in the near future.
Source: CNBC Television YouTube
Chief economist at Comerica Bank, Bill Adams, commented on the market’s reaction to the possibility of rate increases, stating:
“The important takeaway is that Powell had a chance to signal a shift to a more aggressive posture, and he didn’t take it. In the near term, the Fed will likely continue to make one (or perhaps two) more hike(s) before going on hold. There is, of course, room for the Fed to surprise in either direction depending on how the data flow surprises. If the great recent headlines for the economy — 2.9% real GDP! 517,000 jobs! 3.4% unemployment! — capture what’s really happening, the Fed could make two or, who knows, even three more quarter percentage point rate hikes before going on hold.”
The Chicago Mercantile Exchange’s FedWatch tool, which analyzes the probability of Federal Reserve interest rate hikes, updated to suggest a 93.7% chance that the Federal Reserve will raise rates by 25 basis points, up from 82% last week and 66.8% last month. The probability of an additional raise in May was calculated at 73.1%.