Immediately following Powell's remarks, the stock market dropped in reaction. How Does Uncertainty Play a Role in What Powell Had to say? The median of FOMC dots projects a target interest rate of 3.375% for 2024.
Markets are pricing roughly the same peak rate of 3.50% by December 2022, and another quarter percent hike by March 2023, but others continue to envision a cut or two by the end of next year. So, what is the Fed's real long-term target for inflation? After the Federal Open Market Committee's (FOMC) July news conference, former Treasury Secretary Lawerence Summers said the Fed's long-term inflation estimate of 2% on the back of a 4.1% unemployment rate by 2024, especially in a high-inflation environment, was "highly implausible." It's essential for the Fed to accurately assess the economy's potential growth to avoid underestimating persistent inflation like in the 1970s.įollowing the Jackson Hole meeting, the rate hike expectations increased marginally for 2023. The soft July inflation reading is short of what the committee needs to see before turning more dovish.A solid underlying economic momentum despite mixed economic data.There were two potential arguments in favor of the Fed's hawkish move: He emphasized the Fed's unconditional commitment to combat above-target inflation. "The Fed won't repeat the mistakes of the 1970s and '80s, and prematurely cut rates in its inflation," Powell advised. The Fed is ready to keep monetary policy tighter for longer and did not offer any forward guidance or numerical markers for when they might stop hiking interest rates. The market reaction is initially positive with the news, but could change by the open, as further evidence that the Fed is a ways off from fully achieving its objective. The August jobs report shows a payroll increase of roughly 315,000 new jobs for the month, which exceeded the expectation of 298,000 (Source: Bloomberg). Moreover, Powell shared that, as the stance of monetary policy tightens further, it will likely become appropriate to slow the pace of increases.Īdditionally, the jobs report is one of the last big data points before the upcoming meeting.
August's consumer price index is due Sept. However, even though the index shows inflation went down in July, Powell reinforced that the improvement falls "far short" of what they need to see before we can trust that inflation is moving down. In June, the index hit an alarming +9.1% and fell slightly to +8.5% in July. This index measures the average price change over time in a fixed market basket of goods and services. With that in mind, we're closely watching the monthly Consumer Price Index. "We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%," he said. Some thought that the Fed might back off a bit after raising rates three-quarters of a percent in its last two meetings, but he appears steadfast. Powell remains hawkish in the face of heightened inflation. So, in the meantime, what can we learn from Powell's remarks? What We're Keeping an Eye On Powell said their decision during that meeting will depend on the incoming data and the evolving outlook. While his keynote was the most talked about moment of the conference, it will be another month before we hear from the fed definitively on interest rates again. Powell spoke to central bankers from around the world, emphasizing that "a single month's improvement falls far short of what the Committee will need to see before we are confident that inflation is moving down." The conference took place in Jackson Hole, Wyo., for the first time in person since before the pandemic. Fed Chair Jerome Powell recently delivered a keynote speech at the Federal Reserve Bank of Kansas City's Annual Economic Policy Symposium on Aug.
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