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Higher for longer and faster hikes


Fed Chair Powell’s Monetary Policy Report The testimony supported widespread expectations for an extended, more stringent policy stance. This has been the official position since beginning of this year. Powell was adamant, as he did with his Jackson Hole comments. He suggested that the pace of tightening could be increased. We were not surprised by the surprise response of the markets. Stocks and bonds immediately show bearish reactions With Treasury yields spike and Wall Street slumps. The USDIndexFirming was on the other side. The decision to up-shift back at a pace of a half-point rate increase pace was made. March 22 is not a final deal. Powell stressed it depends crucially on the “totality” of upcoming data in Friday’s nonfarm payrolls, and the following CPI release on March 14.

Though the FOMC’s mantra for several months has been higher for longer, It is only recently that markets have started to take that message seriously. A second signal was sent to this extent, and Chair Powell, like Jackson Hole, boosted the possibility for a faster pace, back at a 50 basis points hike after the February step down to a 25 basis-point move.

Because it would be a policy error to reverse the previous decision to slow down the pace, it’s unlikely that the Fed would do so. But…

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