Faster rate moves and a higher peak coming from the US Fed

<p>Kia ora,</p><p>Welcome to Wednesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news markets have been moved by US Federal Reserve chairman Powell's testimony to Congress and it was a bit more hawkish than markets were expecting. The 2-10 US bond yield curve hit -100 bps for the first time since 1981.</p><p>But first, the overnight dairy auction was a lame affair. Overall prices were down -0.7% in USD terms but given the shift lower in our currency they were up +0.7% in NZD terms. The WMP price was confirmed from the Pulse event the prior week, but the cheddar price took a very heavy drubbing, down more than -10%. Butter was essentially unchanged. None of the components lifted in the expected way, so this event has been a disappointment. Overall, this result isn't going to change any forecasts on its own, but it does expose the early February rise as an outlier, and there have been 18 event declines in the past year (of 26 events) and prices are now a third lower than where they were a year ago.</p><p>In Washington DC, Powell <a href="https://www.federalreserve.gov/newsevents/testimony/powell20230307a.htm" target="_blank"><strong>told</strong></a> the US Congress the Fed is prepared to increase the pace of rate hikes, because the data shows a stronger American economy that has been unresponsive to the rate hikes so far. He signaled that rate hikes will probably go higher than they have previously indicated.</p><p>While he was speaking, the <a href="https://www.redbookresearch.com/" target="_blank"><strong>retail data</strong></a> for last week came in and it was unusually weak, up only +3% from year-ago levels on a same-store basis and far less than inflation. In fact, it was the weakest rise since late 2021.</p><p>Perhaps reflecting the lower mood, the <a href="https://www.the-lmi.com/february-2023-logistics-managers-index.html" target="_blank"><s