Fed chief Jerome Powell rattles markets with rates talk

Wall Street had already been convincing itself that higher rates than earlier thought were on the way and that the Fed may even possibly go back to larger rate increases following last month’s data reports.

Since getting last month’s blowout jobs report and other surprisingly strong data, Wall Street has largely abandoned hopes that percolated early this year for a possible cut to interest rates later in 2023. It also upped its forecast for how high the Fed will ultimately take rates before pausing.

That’s been most clear in the bond market, where the yield on the 10-year Treasury topped 4 per cent last week and hit its highest level since November. It helps set rates for mortgages and other important loans.

On Tuesday, it again approached 4 per cent after Powell’s comments before falling back to 3.96 per cent, where it was late Monday.

The two-year yield, which moves more on expectations for the Fed, climbed to 4.94 per cent from 4.87 per cent and is near its highest level since 2007.

Traders now see roughly even odds that the Fed’s next rate increase will be either another move of 0.25 percentage points or that it will accelerate back to 0.50 percentage points. Just a day earlier, they were betting on a roughly two-out-of-three probability for the smaller increase, according to data from CME Group.

More fireworks may arrive later this week and into next as the Fed gets more data points that will surely help shape its decision-making ahead of its next meeting on interest rates later this month.

On Friday will come the US government’s monthly jobs report. Within that, most of the attention will be on how high wages are going for workers. The fear at the Fed is that too-strong gains could lead to more upward pressure on inflation.

Then two reports next week will give updates on how high inflation remains at both the consumer and at the wholesale levels.

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The big shifts among investors about where inflation and the Fed are heading have led to sharp movements for markets. In January, stocks rallied and bond yields eased as hope blossomed that inflation would cool and get the Fed to take it easier on interest rates. Then, last month’s torrent of strong data dashed those expectations and sent stocks falling and bond yields jumping.

On Wall Street Tuesday, WW International, better known as WeightWatchers soared after saying it’s getting into the prescription weight loss business with the purchase of telehealth platform Sequence. WW will pay $US106 million ($161 million) for Sequence, which served about 24,000 members across the US as of February.

Shares of WW jumped 42.4 per cent.

Stock markets abroad were mixed.