New Fed Chief Sees Interest Rates Continuing To Rise As Economy Strengthens

Reuters

Earlier in the session, the dollar hit a six-week high after a set of solid US economic data stoked expectations of four rate hikes by the Fed.

Initial U.S. jobless claims (http://www.marketwatch.com/story/us-jobless-claims-fall-to-lowest-level-since-1969-2018-03-01) fell by 10,000 to 210,000 in the seven days ended February 24, the lowest level in almost 50 years.

In addition, reports covering US auto sales for February are scheduled to roll in throughout the day. The S&P 500 lost 21.52 points, or 0.79 percent, to 2,692.31 and the Nasdaq Composite dropped 59.12 points, or 0.81 percent, to 7,213.89. "The best approach is to deal directly with the people who are affected rather than falling back on tariffs".

The Fed chair stopped short of giving too much detail, adding that a decision would be made with other Fed governors at the upcoming Federal Open Market Committee meeting in March. Some traders took that as a signal that the Fed may get more aggressive about raising interest rates, which has been a top concern for investors.

Powell added that he expects to see wage inflation soon. "Similar numbers of participants see upside risk to the outlook and downside risks on inflation", analysts from Barclays wrote in a recent note.

On the data front, the Commerce Department said consumer spending rose 0.2% in January, while personal income rose 0.4%. Bank of Japan's policy board member Goushi Kataoka called for more easing efforts, aiming to hit the central bank's 2 percent inflation target.

Powell said that when it came to projecting future rate increases at the Fed's upcoming March meeting, at which a quarter percentage point rise is nearly certain to be announced, he and other members of the Open Market Committee would be "taking into account everything that's happened since December". "Nothing in that suggests to me that wage inflation is at a point of acceleration", Powell testified. The U.S. unemployment rate is at a 17-year low of 4.1 percent.

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Powell will speak in the late morning before the Senate Finance Committee.

"By continuing to gradually raise interest rates over time, we're trying to balance those two things ...achieve inflation moving up to target, but also make sure that the economy doesn't overheat", said Powell. "The Fed is actually going to be wondering whether or not four rate hikes are going to be enough this year".

"Even though the dollar is stronger and Treasury yields are higher, the gold market oversold itself yesterday, and now we're recovering a bit", said Walter Pehowich, executive vice-president of investment services at Dillon Gage Metals.

"Powell erred to the hawkish side and had speculation running rampant that the Feds will trigger quicker pace of interest rate increases as the economy accelerates", said Stephen Innes, head of trading at Oanda.

His comments on Tuesday sparked a jump in USA bond yields and a drop in US stocks as investors took his bullish statements about the economy as a signal the Fed would raise rates four times this year, as opposed to the three increases policymakers projected in December.

Information for this article was contributed by Sophie Caronello of Bloomberg News.

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