Powell Signals for More Monetary Tightening as Fed Remains Focused on Inflation
Federal Reserve Chair Jerome Powell emphasized the central bank’s commitment to reducing inflation and maintaining a tight monetary policy until prices stabilize. During his speech at the Economic Club of New York, Powell suggested that if inflationary pressures persist, additional interest rate hikes may be necessary.
Inflation Still a Concern Despite Recent Moderation
Powell acknowledged that while headline and core PCE inflation have decreased from earlier highs this year, it is too early to be confident that inflation will remain near the Fed’s target of 2%. He stated that he and his colleagues are dedicated to bringing inflation down sustainably.
Tightening Financial Conditions May Impact Inflation
Powell highlighted that tightening financial conditions are placing downward pressure on inflation. However, he cautioned that continued above-trend economic growth or a tight labor market could require further policy tightening to address inflation risks.
Monitoring Rising Treasury Yields
The Fed chair expressed concern over the significant rise in longer-term Treasury yields, which has resulted in tighter financial conditions. Powell emphasized the central bank’s vigilance in monitoring these developments as they could impact future monetary policy decisions.
Rate Hike Expectations Surge
Following Powell’s remarks, the 10-year Treasury yield reached a 16-year high. The CME Fedwatch tool now indicates a 99% probability of a rate hike at the next Fed meeting. Investors anticipate a 0.25 percentage point increase in interest rates in November.
Fed Remains Committed to Inflation Target
Powell reiterated the Fed’s unwavering dedication to reducing inflation and achieving its long-term target of 2%. He emphasized that the central bank will maintain a policy that is restrictive until they are confident that inflation is on track to reach their objective.
Market Reactions
Following Powell’s speech, all four major US stock indices experienced a downturn. In contrast, precious metals saw a slight increase, while the crypto markets were largely unaffected. The decline in US equities was attributed to Powell’s remarks in New York.
Hot Take: Fed Chair Powell Signals for Further Monetary Tightening Amid Inflation Concerns
Federal Reserve Chair Jerome Powell delivered a speech reiterating the central bank’s commitment to combating inflation and maintaining a restrictive monetary policy. Powell warned that if inflationary pressures persist, additional interest rate hikes may be necessary. He emphasized the importance of bringing inflation down sustainably and expressed concerns about tightening financial conditions. The rise in longer-term Treasury yields has caught the Fed’s attention, leading to increased expectations of a rate hike. Despite market reactions, Powell underscored the Fed’s unwavering dedication to achieving its inflation target. Overall, Powell’s remarks signal the possibility of further monetary tightening as the Fed remains focused on addressing inflationary risks.
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