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Powell hints that the Fed will raise interest rates 4 times in 2018

Myles Udland
·Markets Reporter

Federal Reserve chair Jerome Powell moved markets on Tuesday in his first appearance before lawmakers on Capitol Hill since his confirmation.

In response to questions from Rep. Carolyn Maloney (D-NY), Powell hinted that more aggressive action on raising interest rates from the Fed could be warranted this year.

“At the December meeting, the median [FOMC] participant called for three rate increases in 2018,” Powell said. “Now since then, what we’ve seen is incoming data that suggests a strengthening in the economy.”

Following this comment, stocks — which had been higher as Powell began speaking and answering questions — moved lower across the board with the major averages moving to losses on the day of about 0.2%. Bonds were also on the move, with yields pressing higher after falling on Monday, with the 2-year yield hitting 2.26% and the 10-year yield rising to 2.89%. Last week, the 10-year hit a four-year high of 2.95%.

Fed Chair Jerome Powell speaks as traders work on the floor of the NYSE, February 27, 2018. REUTERS/Lucas Jackson
Fed Chair Jerome Powell speaks as traders work on the floor of the NYSE, February 27, 2018. REUTERS/Lucas Jackson

“We’ve seen continuing strength in the labor market, we’ve seen some data that will — in my case — add some confidence to my view that inflation is moving up to target,” Powell added. “We’ve also seen continued [economic] strength around the globe, and we’ve seen fiscal policy become more stimulative.

“I think each of us is going to be taking the developments since the December meeting into account and writing down our new rate paths as we go into the March meeting and I wouldn’t want to pre-judge that.”

Markets, however, are clearly taking Powell’s comments as a sign that his view on the economy will be upgraded notably when the Fed’s next set of economic projections is released in just over two weeks.

The read-through from markets is that Powell will not be the only Fed official to move their view of the economy, potentially pushing the Fed’s median forecast for the number of rate hikes in 2018 to four, from three.

Current market pricing suggests that an interest rate increase at the March 14-15 policy meeting is all but a done deal, a move that would bring the Fed’s benchmark interest rate target range to 1.5%-1.75%. This would make the Fed Funds rate the highest since October 2008.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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