is already in a recession given the strong job market, he noted a clear slowing in demand during the second quarter. While the Fed chairman said he doesn’t think the U.S. “We continue to expect core inflation to push the Fed to hike more aggressively than they or markets anticipate with a 75 hike in September, policy rates reaching 4% by year-end and probably rising further in early 2023,” said Andrew Hollenhorst and Veronica Clark.īut markets seem to have focused on Powell’s comments about slowing growth, taking them as a positive sign of fewer rate increases and quicker cuts. Nonetheless, CME data show traders now see rates topping out slightly lower than they did before Powell took the stage.Įconomists at Citi warn that Powell’s comment that a slowdown in hikes would be appropriate at some point shouldn’t be read as dovish. That expectation doesn’t square with a return to 2% inflation, and Powell didn’t say anything Wednesday to endorse the idea that rate cuts would come so soon. In recent weeks, traders have been increasingly betting the Fed would quickly pivot and begin cutting interest rates in the first quarter of 2023. Powell tried to walk a fine line between acknowledging a weakening economy and unacceptably high inflation. Another 0.75-point hike could be necessary in September, he said, but there is a lot of time between now and then and a half-point hike at the next meeting seems an equally reasonable bet.Īfter Powell finished speaking, traders put slightly better odds on a half-point hike next month.ĭata show that probability at 60%. He emphasized the Fed’s commitment to restoring price stability and said failing isn’t an option, and he said economic uncertainty remains unusually high. Fed Chairman Jerome Powell has said 0.75-percentage-point hikes wouldn’t be common, and a recent cooling in some measures of consumer inflation expectations mean the Fed could start to tighten by smaller increments.īut during his press conference Wednesday, Powell tried to back away from the more explicit forward guidance investors have come to expect. The question from here is how restrictive interest rates get. The Fed’s Response to Inflation Now Can Avert a 1970s-Style Crisis.How Pessimistic Americans Could Worry the Economy Into Recession.
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