Powell’s testimony is a sideshow – follow the data

UNITED States Federal Reserve chair Jerome Powell sent markets into retreat once again on Tuesday (Mar 7) with a warning to Congress that interest rates may be heading higher than previously thought. It’s important to remember that he could well change his mind – maybe as soon as this week.

Powell, of course, had the unenviable job of delivering remarks to US lawmakers amid a uniquely uncertain economic backdrop. In late 2022, it appeared that key parts of the economy were moderating in accordance with the Fed’s inflation-fighting goals, and consumer price increases seemed to be cooling. But then data from January suggested that the economy was re-accelerating, and progress on the inflation fight seemed to falter.

As Powell put it on Tuesday: “The latest economic data has come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.