Market Recalibrates After Powell Warns of Bigger Rate HikesMarketRecalibratesAfterPowellWarnsofBiggerRateHikes

After slowing its pace of rate hikes, the Federal Reserve may get back on the throttle in response to resilient economic activity. During congressional hearings this week, Chair Jerome Powell said policymakers at the central bank “would be prepared to increase the pace of rate hikes” if economic indicators suggest they need to move faster to cool inflation. “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” he said. Powell’s comments – his first since a recent volley of strong data – triggered a recalibration across financial markets, as investors penciled in a bigger half-point increase in the fed funds rate when officials meet again in late March.

Meanwhile, the yield curve’s inversion reached its widest level since 1981, suggesting market participants continue to expect a recession. The Fed will get a fresh glimpse at the state of the US economy when the Bureau of Labor Statistics issues its February jobs report on Friday, followed next week by data on consumer and wholesale inflation and the housing market. In its quarterly insights, PGIM Real Estate explores why value losses in some US industrial markets will not be as pronounced as others in an economic downturn.