Powell hints at faster pace of rate rises

Powell hints at faster pace of rate rises”

Economic growth in the United States has gathered momentum since December, on the back of looser fiscal policy and higher demand from export markets, Jerome Powell said yesterday (February 27) in his first appearance before Congress as chair of the Federal Reserve.

Trump announced on Thursday he would impose heavy tariffs on imported steel and aluminium to protect USA producers, risking retaliation from major trade partners such as China, Europe and Canada. "It would raise the price of autos, look at the auto stocks".

Banking stocks led by Axis Bank, Yes Bank, ICICI Bank and HDFC Bank took a hit after the finance ministry set a 15-day deadline for banks to take pre-emptive action on operational and technical risks, following a $ 2 billion fraud at Punjab National Bank.

The market reaction was uneven.

The S&P 500 stock market index dipped 0.4 per cent by midday in NY, with investors ratcheting up the market-implied odds of four interest rate increases this year to 30 per cent from 10 per cent.

"This is a continuation of where this Fed was under Chair Yellen", said Robert Albertson, principal and chief strategist at Sandler O'Neill & Partners in NY. "All of those stocks that have steel or metal, they slid up". The euro, British pound and yen all rose versus the greenback, which pared earlier gains.

"Bonds are providing a nice shock absorber here", said Gene Tannuzzo, a portfolio manager at Columbia Threadneedle Investments.

"There is always a risk of a recession at any point, but I don't see it as at all high right now", he added.

Following Powell's remarks, the margin between US shorter- and longer-dated yields narrowed.

"My personal outlook for the economy has strengthened since December, " Powell said in response to a question about whether the recent tax cut and other moves by Congress have changed his outlook for how quickly the Fed will raise interest rates.

Roy Teo, investment strategist for LGT Bank in Singapore, said Powell would probably sound optimistic on the economic outlook and that he would stress patience in assessing whether inflation will head higher.

"It's believed the Fed will slowly rise rates as economic growth continues, although Powell has already indicated that may not be the case in 2018", he said.

Elsewhere, the Stoxx 600 Index fell as some companies missed their earnings estimates and manufacturing data showed that growth may have peaked.

Elsewhere, the United Kingdom pound extended a decline and the nation's bonds rose after the European Union published a draft Brexit treaty, with Prime Minister Theresa May squaring off for a fight. Fatter wallets and a solid labor market signal inflation-adjusted consumer spending may pick up after falling in January, while progress on prices reaffirms that the Fed will opt for a widely expected rate rise this month - and remain on track for at least two additional increases this year. For his part, Bill Gross heard "Fed put is dead" and he also heard a Fed Chair who doesn't understand structural headwinds to inflation.

U.K. Prime Minister Theresa May delivers a speech Friday on Britain's relationship with the European Union.

The S&P 500 fell 3 points, or 014%, to 2,710, with six of the 11 main sectors trading lower. The S&P 500 lost 36.16 points, or 1.33 percent, to 2,677.67 and the Nasdaq Composite dropped 92.45 points, or 1.27 percent, to 7,180.56.

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