Interest Rate Hike In March Is Certain

How likely are these factors going to impact the tightening pace? Find out in our latest analysis.

Powell’s Takes on the Russia–Ukraine Crisis and Rate Hike

Fed Chair Powell affirmed in testimony to Congress on Wednesday that the Fed will begin interest rate hike at March’s FOMC meeting. He cited the recent Russian–Ukraine crisis as a key factor to the future tightening pace, in addition to inflation. He highlighted that there are still too many uncertainties ahead so the Fed will be cautious before making any big decision. Receive the latest news here

“There are events yet to come and we don’t know what the real effect on the U.S. economy will be. The implications for the U.S. economy are highly uncertain, and we will be monitoring the situation closely. The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain,” Powell said.

In light of the current situation, Powell is eyeing to increase short-term interest rates by 0.25%. If inflation does not ease as quickly as expected, the Fed might tighten more aggressively. Powell did not rule out the possibility of increasing rates by 0.5%. Notably, the last time the Fed opted for a 0.5% rate increase was in 2000.

Nonfarm Payroll Preview

The US Labor Department is releasing the nonfarm payrolls results for February this Friday. The market consensus is 400K added jobs, fewer than January’s 467K added jobs.

While some analysts still cited Omicron as a factor that might adversely affect Friday release, the impact of Omicron on the US job market might be less severe as expected. There was a surprise for January’s nonfarm payrolls as the actual data exceeded expectations. The US economy added 467K jobs in January, versus the expected 150K. Looking into other data, both the labour force participation rate and average hourly earnings are better than expected.

Market Reaction

In light of Russia’s invasion, US crude oil surged to its highest since 2011 and Brent oil ended on Wednesday at its highest close in nearly eight years.

The US dollar index was not much impacted by Powell’s speech and hovered around 97.35. Meanwhile, as the consumer prices in the Eurozone increased 5.8%, EUR/USD dropped slightly to 1.1121. Receive the latest price updates on the hottest FX pairs

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.