Stocks fall after Powell warns of higher peak rates
“It’s very premature to think about taking a break,” he reiterated.
Them&The P 500 erased an early 1% gain to close down 2.5% in its worst Fed decision day rout since January 2021. The Dow Jones Industrial Average fell 1.5% and the composite Nasdaq by 3.4%.
The Australian dollar fell to US63.48¢ after trading at US64.92¢ following the Fed statement.
Futures markets moved to a slightly higher price, or peak, of the federal funds rate of 5.07% for May next year, from 5.05% before the central bank’s decision.
That still sits above the 4.5% to 4.75% target range shown in the Fed’s September economic projections, which were not updated at the November meeting.
” Compared to the [current] The target of fed funds and judging by the sentiments expressed by Mr. Powell, one could be forgiven for thinking that the risks associated with current Fed prices in 2023 are currently on the upside,” said Ray Attrill, head of of FX strategy at National Australia Bank.
Westpac economists remain confident the Fed will forgo a 0.50% rate hike at the December meeting, followed by a further cut to 0.25 percentage points in January.
That would leave the midpoint of the federal funds rate at 4.625%, which Westpac senior economist Elliot Clarke says is tight enough to drive inflation, which is turning near a 40-year highreturn to the central bank’s objective.
However, Clarke acknowledged that the risk of a longer tightening cycle is always present.
“It was clear from the press conference that Chairman Powell still views inflation risks as biased to the upside, potentially creating the need for the committee to continue to rise at a slow pace into mid-2023,” he said. he declared.
TD Securities increased its terminal rate forecast range to between 5.25% and 5.5%, from 4.75% to 5%.
It forecast a 0.5 percentage point increase in December and February, followed by a 0.25 percentage point increase in March and May.
TD said that level of tightening would likely push the U.S. economy into recession in the second half of next year.