Federal Reserve Chair Jerome Powell stuck to his message that interest rates need to keep rising to quash inflation and this time, the bond market listened.
In particular, Powell floated the idea during an event in Washington on Tuesday that borrowing costs may reach a higher peak than traders and policymakers anticipate.
The talk was Powell's first since last Wednesday, following the Fed's decision to raise rates by a quarter point, when markets shook off his warning that rates were headed up and rallied anyway.
The chair offered similar words again but, in the aftermath of a red-hot January employment report, they hit home harder.
"We think we are going to need to do further rate increases," Powell told David Rubenstein during a question-and-answer session at the Economic Club of Washington. "The labor market is extraordinarily strong."
If the job situation remains very hot, "it may well be the case that we have to do more," he said.
Job Data, Reactions
Much stronger than expected U.S. government data on Friday showed employers added 517,000 new workers in January while unemployment fell to 3.4%, the lowest rate since 1969. Powell said the report "shows you why we think this will be a process that takes a significant period of time."
Bonds sold off after an initial rally as the Fed chair opened the door to a higher peak rate in 2023 if the job market doesn't start cooling. US stocks also backtracked as Powell spoke but closed the session higher.
His remarks suggest that the 5.1% interest-rate peak forecast by officials in December, according to their median projection, is a soft ceiling. Powell sounded willing to follow the data and move higher if necessary.
The Federal Open Market Committee lifted its benchmark rate by a quarter percentage point to a range of 4.5% to 4.75% last week. The smaller move followed a half-point increase in December and four jumbo-sized 75 basis-point hikes prior to that.
