Stocks fall as Powell leaves door open to bigger rate hikes

Published On: March 22, 2022Categories: Stocks & Shares1.7 min read

The Fed chief underlined the need to tighten monetary policy at a quick pace, adding that upward pressure on prices from the invasion of Ukraine comes at a time of ‘already too high inflation’

Stocks fell Monday after Federal Reserve Chairman Jerome Powell left the door open to the prospect of bigger rate hikes to bring down inflation, but equity benchmarks finished above session lows.

Shares of Boeing Co., the Dow’s biggest loser, fell after a Boeing 737 passenger plane operated by China Eastern Airlines and carrying 132 people slammed into the mountains of southern China.

All three major stock indexes dropped and Treasurys aggressively sold off on Monday as Powell, speaking to the National Association for Business Economics, repeated that the central bank could deliver rate increases of larger than 25 basis points each at future meetings if policy makers deem it necessary in their fight to control inflation.

The Fed chief underlined the need to tighten monetary policy at a quick pace, adding that upward pressure on prices from the invasion of Ukraine comes at a time of ‘already too high inflation.’

If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so, he said.

Powell also pushed back against fears the Fed can’t aggressively raise rates without tipping the economy into recession, arguing that the central bank previously achieved soft landings as it tightened policy significantly in 1965, 1984 and 1994.

What he did was underscore the flexibility that the Fed has and make it clear the Fed could hike faster and by a greater amount, said Marc Chandler, chief market strategist at Bannockburn Global Forex. The stock market didn’t like it and neither did the bond market.

Equities have gained ground since the start of the Federal Reserve’s first rate-hike campaign since 2015-2018, which included a quarter-point hike last week and the prospect of a total of 10 or 11 quarter-point hikes through 2023.

Earlier in the day, Atlanta Federal Reserve Bank President Raphael Bostic, a nonvoting policy maker this year, told the National Association for Business Economics that ‘elevated levels of uncertainty’ have tempered his confidence that an ‘extremely aggressive rate path’ is appropriate for the Fed.

About the Author: Jonathan Adams

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