Fed’s Jerome Powell addressed Congress on Tuesday, detailing the central bank's outlook for monetary policy and economic growth for the coming years. His view regarding the U.S. economy was optimistic and said recent data had strengthened his confidence on inflation.
Jerome Powell’s first official appearance signaled a more aggressive approach towards the future path of interest rate hikes in an effort to prevent the economy from overheating. Anxiety though was sparked among the equity traders.
When asked about likely catalysts for more than three rate hikes in 2018, Powell did not want to prejudge as the Fed members will be crafting a new “dot plot” rate path ahead of the March meeting. Their new projections would also be influenced by federal government's ambitious fiscal policies including tax cuts. After his remarks, traders began pricing in about 33% possibility of a fourth hike within this year.
Fears of faster U.S. rate hikes have caused anxiety that other central banks will start hiking rates raising the borrowing costs. As a possible effect, corporate earnings could be hurt, blurring the outlook for what had been expected to be another solid year of global economic growth.
The Fed moved three times in 2017 and is seen as certain to do the same or more this year, with the first move expected in the next FOMC policy meeting in March.