Despite growing uncertainty as a result of the war in Ukraine, Federal Reserve Chairman Jerome Powell is signaling a rate hike this month (March).
Speaking to the US Congress ahead of the forthcoming interest rate decision (March 15-16), Powell said the central bank should raise interest rates amid high inflation, strong demand and a labor market he defined as “significantly tight.”
Since the start of the Corona crisis, the Fed has been buying government bonds and mortgage-backed securities at the fastest rate ever. That are due.
The rise in world commodity prices, which was recorded as a result of supply disruptions in the face of the fighting in Eastern Europe, is expected to lead to a rise in inflation that has previously exceeded the target of several central banks around the world as a result of the corona crisis. At the same time, Powell said it was too early to say how Russia’s invasion of Ukraine would affect the American economy.
The US inflation rate rose to 7.5% in January – the fastest rate of price increases since 1982 and above market expectations of a 7.2% rise. But markets estimate that the economy will not be able to accommodate sustained interest rate hikes and the possibility of a slowdown while rising in inflation rises – that is, stagnation.
Market economists anticipated the move and even estimated until before Russia’s invasion of Ukraine a high probability of a double increase in interest rates by 50 basis points, but this assessment collapsed against the background of risks and the sharp rise in uncertainty in the war in Eastern Europe. New York markets are trading higher despite the Fed’s signal, and despite the sharp jump in commodity prices. The price of oil jumps by about 6% to a level of $ 110 per barrel, with in the background the Organization of Petroleum Producers members of the OPEC agreed today as planned to increase the production rate by 400 thousand barrels per day. Emergency 60 million barrels of oil, equivalent to six days of Russia’s supply.