Hawkish Powell says Fed could keep lifting rates sharply

Federal Reserve Chair Jerome Powell signalled the US central bank is likely to keep raising interest rates and leave them elevated for a, and he pushed back against any idea that the Fed would soon reverse course.

Investors reacted to the speech by extending the rise in shorter-date Treasury yields. The 2-year note pushed as high as 3.44% while the 2- to 10-year yield curve resumed its flattening. Equities were slightly lower.Prior to Powell’s speech, investors saw the odds of a half-point or another three-quarter point hike at the Fed’s Sept. 20-21 gathering as roughly even. They remained in that vicinity after he spoke, but the amount of reductions in fed rates priced for 2023 briefly retreated.

Powell’s remarks at the retreat, which gathers top policy makers from around the world, come as US central bankers confront the highest inflation in 40 years. Officials were slow to spot the risk and are now moving aggressively to keep prices from accelerating further. Officials raised rates by 75 basis points at their last two meetings and signalled the same could be on the table again when they gather next month.

“We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%.”

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