NEW YORK, Feb 1 (Reuters) - Federal Reserve Chairman Jerome Powell said on Wednesday he is not fully sure where the central bank will stop with rate rises as it presses forward with its efforts to cool inflation.
"There is more work to do" and the Fed has not decided where it will stop rate rises, with the possibility the Fed will go above the 5.1% federal funds rate it penciled in as a terminal rate in its December forecasts, he said in a press conference following the Federal Open Market Committee meeting.
But Powell did give a nod to disinflation, which he said is in its early stages.
The Federal Reserve raised its target interest rate by a quarter of a percentage point on Wednesday, yet continued to promise "ongoing increases" in borrowing costs as part of its still unresolved battle against inflation.
MARKET REACTION:
STOCKS: U.S. stocks turned higher in the wake of Powell's remarks.
BONDS: U.S. Treasury yields extended their fall. FOREX: The U.S. dollar extended losses following Fed remarks after the Fed statement.
COMMENTS:
"The market is rallying despite what the Chairman said and not because of what he said. He's been very clear that they are going to raise rates at least two more times (unlike one more time, which was consensus) and that their job is not done and that they would rather overdo raising rates than underdo it. The Fed is failing to convince the market that they have the fortitude to stick with restrictive monetary policy until inflation has been reduced to 2%. The market is testing the Fed’s resolve and is going to rally until it is proven wrong."
"Personally, we wouldn't fight the Fed, but clearly more people are willing to do so than you would expect (judging by how much the market has rallied this year and is rallying today).
MATTHEW WELLER, GLOBAL HEAD OF RESEARCH, FOREX.COM AND CITY INDEX, UTAH
"Powell confirmed his expectation that the central bank will raise interest rates (at least) two more times, but his acknowledgement that 'the disinflationary process has begun' has given traders more confidence that those will be the last two hikes of this cycle and that the Fed will be on hold midway through Q2. Meanwhile, his repeated focus on 'core services ex-housing' provides a clear inflation metric for traders to watch to evaluate whether what the central bank will do in the coming months."
MICHELE RANERI, VICE PRESIDENT AND HEAD OF U.S. RESEARCH AND CONSULTING, TRANSUNION, CHICAGO
"This second consecutive lower hike serves as evidence that the Federal Reserve is signaling that significant progress has been made in tamping down inflation and that we have reached a point where rate hikes can be further scaled back. Consumers will likely continue to feel the double-edged effects of both continued inflation and high interest rates for at least a while longer and may seek to shed high interest-debt via personal loans or other lower-interest loan products."
ELLEN HAZEN, CHIEF MARKET STRATEGIST, F.L.PUTNAM INVESTMENT MANAGEMENT, WELLESLEY, MASSACHUSETTS
"The key thing the Fed is focused on is wages and we are seeing wage inflation continue to ameliorate if you look at both average hourly earnings and the employment cost index which just came out, wages are beginning to soften, but they are not softening enough to get inflation down to that 2% target. They are specifically looking at the non-housing services portion of the PCE and as long as wages are still growing at 5-ish% you are not going to see the Fed back off."
"One thing that struck me about the statement is that they had a very slightly dovish change in the language where they previously had talked about determining the pace of future increases and now they are talking about determining the extent of future increases. So they did 25, the market is pricing in two more 25s, that is probably right but the question is going to be what is the terminal rate, when do they stop and when do they start to cut again. But what they have said here is this is a little more dovish than it might have been because they are not talking about the pace anymore."
"This basically takes 50 off the table, not that it was necessarily on, but the language last time could have defended 50 and now that is off the table. They have to see those wages come down."
RYAN DETRICK, CHIEF MARKET STRATEGIST, CARSON GROUP, OMAHA
"The Fed threw no curve balls, as they did what was widely expected. The door is cracking open to end rate hikes, but they still have a chance for one more rate hike at the next meeting."
"The economy is still growing, which is comforting as (the Fed is) not worried of an impending recession."
"Investors should be happy that we likely have a Fed that is going to end hikes fairly soon as the inflation data continues to show major improvements, which is exactly what the Fed needs to take their foot off the pedal."
"Yesterday's Employment Cost Index was an improvement, and Powell said he needed to see employment costs improve before he stops hiking rates. How close are we now with ending the rate hike cycle, when it’s clear employment costs are slowing?"
