Last Updated: 4 November 2022
The US Federal Reserve yesterday raised interest rates by 0.75 per cent to 3.75 to 4.00 per cent. This in itself was no surprise, as everyone had already factored in this interest rate hike. Fed chairman Powell saved the biggest surprises for his speech immediately following the rate hike.
Interest rates should rise further
One interesting statement by Powell concerns the Federal Reserve’s view on the end point of US interest rates during this rate hike cycle. Powell indicated during his speech that the final interest rate we end up at is likely to be a bit higher than initially thought.
Jerome Powell's FOMC statement may have seemed dovish, but the Fed chair's remarks at his press conference were anything but.
These were the key moments after the Fed raised rates by another 75 points https://t.co/aL29b8acEn pic.twitter.com/ECuvx7balv
— Bloomberg Politics (@bpolitics) November 3, 2022
Inflation is a lot stickier than hoped, forcing the Federal Reserve to intervene harder to prevent those higher prices from haunting us forever. For this reason, Powell expects that it is quite possible that the Federal Reserve has a few more hefty interest rate hikes in store for us.
As a result, the US dollar is posting another solid plus today against, for instance, the euro and other major fiat currencies. Shares of tech giants were not happy with Powell’s statements either, as they all ended deep in the red. Bitcoin is managing to stay above $20,000 for now.
Printers on standby
Despite the tough language, Powell also acknowledged that the impact of interest rate hikes is being felt in the economy with some delay. “We are now slowly seeing the effect of interest rate hikes on the housing market,” Powell said. For now, however, the rest of the economy remains strong, with Powell focusing on the strong US labour market in which labour demand is still well above supply.
Should anything break, however, the Federal Reserve will be ready with its money printers to bail out if needed. That was perhaps the most striking statement from Powell, who thereby also indicated that he is not sure where his central bank stands right now in the fight against inflation.
Basically, it seems they will continue until there are real signals from the financial system that the pressure is getting too much. So should it come to that, the money printers will go back on in full force and we can probably expect a major crash of the US dollar. However, how long that will last is hard to say, just like the Federal Reserve is hard for us to determine.