Fed Chair Powell insist on raising rates to fight inflation

Sep 8, 2022

News Resource: CNBC

NEWS:

Markets largely took the comments in stride, with major averages little changed in the early going on Wall Street. Treasury yields were mostly higher, with the two-year note, the most sensitive to Fed rate hikes, rising by nearly five basis points to 3.49%. A basis point equals 0.01 percentage point. The Fed has raised benchmark interest rates four times this year, with the fed funds rate now set in a range between 2.25%-2.50%. Markets widely expect the rate-setting Federal Open Market Committee to enact a third consecutive 0.75 percentage point increase this month. In fact, that probability rose to 86% during Powell’s remarks, according to the CME Group’s FedWatch tracker of fed funds futures bets. Both Goldman Sachs and Bank of America told clients to expect that three-quarter point hike.

ANALYSIS:

The U.S. published more treasury notes to attract monetary funds. The scheme to raise Treasury yield rates (from around five basis point to 3.49%) is an attractive deal to investors. In particular, two-year note is not considered as a long-term commitment Treasury notes and taking into account that investors are not likely to make long-term investment when the economy is fluctuating, two-year note seems to act as a suitable investment for Treasury-securities investors.

The increase in fed funds rate (currently 2.25%-2.50%) will become a good reserve for the Federal to spend for their financial schemes. To fight inflation, raising interest rates will be the most favorable act that the Fed chooses.