Officials from the Federal Reserve emphasised the necessity of continuing to raise interest rates, as well as the possibility that, given sustained price pressures, borrowing costs may peak at a higher level than initially anticipated.
While praising the recent slowdown in inflation, four policymakers who spoke at several venues on Wednesday cautioned that the battle had not yet been won.
Their hawkish remarks follow those made by Fed Chair Jerome Powell on Tuesday. Investors are reevaluating their bets on the Fed’s rate hike trajectory, with some speculating that the peak could reach 6% in the wake of a strong January employment report. At the moment, they are 4.6%.
New York Fed President John Williams stated during a live Wall Street Journal event in New York that “we need to achieve a sufficiently restrictive stance of policy.” “To make sure we get inflation to 2%, we’re going to need to maintain that for a while.”
Last week, policymakers raised their benchmark rate by a quarter percentage point, bringing it to a range of 4.5% to 4.75%. The modest movement came after four massive 75 basis-point raises in the preceding months, including a half-point increase in December.
Another factor is that, while Powell has refrained from criticising the stock market rally that has helped to ease financial conditions recently, other policymakers may in fact use harder language to limit gains. The current rebound in the face of declining profits and economic prospects, according to Lisa Shalett at Morgan Stanley Wealth Management, has created “huge disconnects” that endanger market stability.
We continue to anticipate market volatility going forward as news flow on earnings, inflation, the economy, and the Fed bounces from bullish to bearish and back again, wrote Stephen Auth, chief investment officer. “Even though we shifted early this year from ‘cautious’ to ‘cautiously constructive,’ adding back to stocks for the first time in 18 months, we continue to expect market volatility,” he added.