Morning Market Brief: Friday, June 23, 2023

More rate hikes likely in the US?

In testimony before US Congress, US Federal Reserve Board (Fed) Chair Jerome Powell noted that more interest-rate increases are likely this year. Powell said most officials believe the central bank will need to lift rates even further, given persistent inflationary pressures. Powell believes those rate hikes will come?relatively slower than last year. ?

• Fed Chair Jerome Powell appeared before U.S. lawmakers for his Semi-Annual Monetary Policy Report. The Fed kept the target range of its federal funds rate at 5.00%-5.25% at its meeting last week, marking the first meeting without raising rates since the beginning of 2022.
• Fed officials strongly believe more rate increases will be necessary this year, largely due to still elevated inflation. The Fed believes more rate increases may help tame inflation and could slow economic activity. Inflation in the US is well above the Fed’s 2% target. At its last meeting, the Fed estimated rates could reach 5.6% this year.
• Many lawmakers questioned Powell on the Fed’s bank oversight. Powell indicated the Fed has not voted on any changes to bank rules but is considering a few tweaks.
• The Fed is not alone in its efforts to tame inflation. Yesterday, the Bank of England raised its policy interest rate by a larger-than-expected 50 basis points to 5.00%. The Swiss National Bank also raised its key interest rate yesterday.

Higher interest rates worldwide appear here to stay, likely going even higher this year. The Bank of Canada was one of the first major banks to pause interest rates but reversed course this month with persistently elevated inflation and strong economic growth. Prepare your portfolio for an environment of higher interest rates. Equities could be volatile as expectations of interest rates this year adjust. Fixed income prices could see some pressure, but their yields may move higher, which could provide an attractive income stream for your portfolio.

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