Fed's Powell pushes back on rate-cut bets, says too early to speculate on next move

Fed Chairman Jerome Powell echoed recent comments on the risks of inflation and continued to push back on market bets of a near-term interest-rate cut.

Dec 1, 2023 - 23:30

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Fed's Powell pushes back on rate-cut bets, says too early to speculate on next move

Updated at 11:25 AM EST

Federal Reserve Chairman Jerome Powell repeated his warning that the U.S. economy faces elevated inflation risks, adding that he considers it too soon to speculate as to when the central bank will begin cutting interest rates.

In remarks prepared for a speech at Spelman College in Atlanta, the central-bank chairman pushed back on recent market bets that the Fed has reached the end of its interest-rate-hiking cycle, one of the most aggressive in four decades, and would even look to lower the federal-funds rate in the early spring.

"The full effects of our tightening have likely not yet been felt. The forcefulness of our response to inflation also helped maintain the Fed's hard-won credibility, ensuring that the public's expectations of future inflation remain well-anchored," Powell said.

"It would be premature to conclude with confidence that we have achieved a sufficient restrictive stance, or to speculate on when policy might ease."

"We are prepared to tighten policy further if it becomes appropriate to do so," he added.

Market reaction to Powell's remarks

U.S. stocks were modestly higher following the release of headlines from Powell's remarks, with the S&P 500 marked 5 points, or 0.08%, higher on the session and the Dow Jones Industrial Average gaining 65 points.

Benchmark 10-year-note yields, meanwhile, were marked 5 basis points lower on the day at 4.278% while 2-year notes were pegged at 4.629%

The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.01% lower from yesterday's levels at 103.489.

CME Group's FedWatch is now pricing in no chance that the Fed will lift the benchmark federal funds rate by a quarter percentage point, to between 5.5% and 5.75%, when it meets next month in Washington. The odds of a hike in January, however, edged higher to 10.1%.

Bets on a quarter point March rate cut, meanwhile, are holding at 52.1%, up from just 11% last month, with the odds of a reduction in May pegged at 45.3%.