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Interest rate peak appears higher than previously thought

Federal Reserve Chairman Powell made it clear yesterday that the peak of the current interest rate cycle in the US has by no means been reached and that the Fed, in view of stubbornly high inflation and an unexpectedly robust US economy, could well make larger interest rate moves again. The prospect of a further and rapid rise in interest rates caused unrest and losses on Wall Street. 

Alessandro Fezzi, LGT
Tempo di lettura
5 minuto
Federal Reserve Monetary Policy
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Jerome Powell pointed to recent better-than-expected economic data. "The ultimate level of interest rates is likely to be higher than previously anticipated," Powell told the Senate Banking Committee. On bond markets, the yield on ten-year US Treasuries hovered just below the 4%-mark and the yield on two-year Treasury bonds rose to 5%, the highest level since 2007. In turn, the Dow Jones Industrial fell 1.72% to 32’856.46 points and the S&P 500 posted a one-day loss of 1.53%; closing at 3’986.37 points. On the Nasdaq technology exchange, the indices fell by about 1.2%. The US dollar benefited from the adjustment of the interest rate outlook and pushed the euro well below the 1.06 mark. 

In Asia, equity prices also fell sharply. In Hong Kong, the Hang Seng Index fell by 2.5%, led by losses in consumer cyclicals, healthcare, and basic materials stocks. In mainland China, the Shanghai Composite traded 0.5% lower than the previous day. In Tokyo, the Nikkei 225 rose 0.5%, while the Kospi in Seoul fell 1.3%. 

In Europe, the focus was on consumers' medium-term inflation expectations ahead of the European Central Bank's (ECB) next interest rate decision on March 16. According to the Consumer Expectations Survey, private households expect inflationary pressure to ease further. Expectations for inflation in three years' time fell from 3.0% to 2.5% in January, and shorter-term inflation expectations for the next twelve months also declined slightly from 5.0% to 4.9%. The inflation rate in the euro area was 8.5% in January, and the ECB raised key interest rates by a total of 3 percentage points so far. Nevertheless, a further tightening of monetary policy is to be expected.

Corporate news today in focus: Geberit, Adidas, Continental and Vivendi with annual figures and investor day of Logitech. 

Economic data today in focus: Germany industrial production January (08:00 CET), Eurozone GDP Q4 (2nd revision) and from the US the labour market data from ADP (14:15) and the second hearing of Fed Chairman Powell before the House of Representatives Financial Services Committee (16:00). In addition, Canada's central bank announces its interest rate decision (16:00).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.