Something strange happened last week, De Jong looks back. The US central bank (the Fed) has announced that it will raise interest rates further. But capital market interest rates have indeed fallen, and quite substantially. And the stock market that has soared.’
This is certainly not the response the Fed had hoped for. Because higher interest rates on principal and upbeat stock prices actually go against central bank policy. “The market is actually telling Powell, you can still raise interest rates now, but first you’re going to have to lower them again.”
Powell doesn’t let himself be pressured
However, De Jong doesn’t think Powell and the Fed will let the market pressure them. Financial analysts in the US expect the central bank to hike interest rates by a quarter of a percentage point in March and do it again in May. This would bring the official interest rate to 5.25%. “Compare that with the interest on principal over ten years, which is 3.65 percent.”
“If Powell finally manages to convince the market, then he will have to go up quite a bit,” says De Jong. “But I doubt that will happen.”