The new Fed chair just made his first public statements — and traders don’t like what they heard

Jerome Powell.

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Jerome Powell.
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Reuters/Joshua Roberts

  • Federal Reserve Chairman Jerome Powell’s optimistic outlook on the economy has Wall Street scared about the prospect of four interest-rate hikes this year.
  • “My personal outlook for the economy has strengthened since December,” Powell told members of the House Financial Services Committee.
  • Stock and bond prices moved lower on Powell’s comments, while the dollar rallied.

Federal Reserve Chairman Jerome Powell’s first testimony before Congress on monetary policy and the economy is turning out to be more optimistic than many investors expected, prompting Wall Street to worry that the central-bank chief may be gearing up for a faster pace of interest-rate increases.

Fed projections released in December pointed to policymakers’ forecasts of about three rate hikes for this year, after three rises in 2016 brought the official policy rate to a range of 1.25% to 1.5%.

But Powell appears to have become substantially more upbeat about the nation’s economic prospects since December, following the new tax law and signs of strong overseas growth.

“What we’ve seen is incoming data that suggests a strengthening in the economy,” he told members of the House Financial Services Committee.

His rosy outlook was enough to prompt markets to become nervous about the prospect of four rather than three rate rises this year. Stocks veered lower, while yields on the 10-year Treasury note, which move opposite to its price, climbed to 2.9%. The US dollar jumped by 0.56% against a basket of major currencies.

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

Powell stopped short of committing to boosting his estimates, though he dropped strong hints.

“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 prejudge that,” he said.

Powell added: “My personal outlook for the economy has strengthened since December.”

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Markets Insider