Traders brace for interest rate hike in June after Biden renames Powell

Wall Street is preparing for the Federal Reserve to raise interest rates to near zero in June after President Biden on Monday picked Jerome Powell to head the central bank for another four years.

Following the announcement, a majority of traders are forecasting a rise of at least 25 basis points in June, according to CME’s FedWatch. tool, and about 62% chance of three modest rate hikes in 2022. 32% expect a fourth rate hike in December.

President Joe Biden addresses the 76th session of the United Nations General Assembly on September 21, 2021 at the United Nations headquarters in New York. ((Photo by Timothy A. Clary-Pool / Getty Images) / Getty Images)

“The economy is seeing rising inflation and the Fed has already taken steps to reduce its extraordinary stimulus measures, but it will need to act faster to deal with inflationary threats so that they do not take hold,” said Chris Zaccarelli. , Director of Investments for Independent Advisor Alliance.


Powell, who was first appointed in 2017 by then-President Donald Trump, will face critical political decisions during his second four-year term. Consumer prices have climbed 6.2% in the past year, sparking fears of soaring inflation, raising questions about how central bank policymakers might react as Americans pay more for everything , from meat to clothing to gasoline.

Fed officials began to withdraw support for the economy this month, announcing in early November that they would cut the $ 120 billion in treasury bond and mortgage-backed securities purchases by 15 billion dollars per month.

But Powell has given no indication that higher inflation will push him or other Fed officials to raise interest rates to their lowest point, firmly in his position that these developments do not. are no reason to speed up the central bank’s plans. He suggested the Fed would wait until the reduction in bond purchases is over and until officials determine the labor market is fully recovered.

Elizabeth Warren Jerome Powell

Senator Elizabeth Warren, D-Mass., Chats with Federal Reserve Chairman Jerome Powell ahead of a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act in Capitol Hill on Tuesday 28 September 2021 in Washington. (Kevin Dietsch / Pool via AP / AP Newsroom)

“We will be patient,” he said. “If an answer is required, we will not hesitate.

Experts recently questioned this philosophy and wondered whether the central bank might be forced to act sooner than it is currently telegraphing the markets.


Combined with new evidence that the labor market is recovering from a summer slump – the unemployment rate fell to a new pandemic low of 4.8% in October as the economy grew 531,000 jobs – the US central bank may have no other choice but to raise interest rates as early as next summer.

“It’s hard to see how the Fed will be able to sit on the sidelines much longer,” said Matthew Sherwood, global economist at the Economist Intelligence Unit.

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