Federal Reserve Chair Powell Warns of Inflation and Potential Interest Rate Increases

One sentence summary – Federal Reserve Chair Jerome Powell has emphasized the need to combat inflation and warned about potential interest rate increases, sparking market volatility, although his comments were seen as less hawkish than expected; the Fed has implemented 11 interest rate hikes and reduced its balance sheet, with no signs of easing in monetary policy, and while the markets do not anticipate a rate hike in September, there is a 50-50 expectation of a final increase in November.

At a glance

  • Federal Reserve Chair Jerome Powell emphasizes the importance of vigilance in combating inflation.
  • Powell warns about potential increases in interest rates.
  • Inflation continues to exceed the desired level despite some progress.
  • The Federal Reserve signals flexibility in monetary policy but no signs of easing.
  • Market expectations do not foresee another rate hike in September, but a 50-50 expectation of a final increase in November.

The details

Federal Reserve Chair Jerome Powell has underscored the importance of vigilance in combating inflation.

He has also issued a warning about potential increases in interest rates.

While acknowledging some progress, Powell stated that inflation continues to exceed the desired level.

The Federal Reserve (Fed) has signaled flexibility in its monetary policy, but there are currently no signs of easing.

Powell emphasizes consistent progress in reducing inflation

Powell emphasized the need for consistent progress in reducing inflation, pointing out the risks of both overdoing and underdoing it.

Powell’s comments sparked volatility in the markets, although they were perceived as less hawkish than anticipated.

It’s important to note that the Fed has implemented 11 interest rate hikes, pushing the key interest rate to its highest point in over 22 years.

In addition, the Fed has significantly reduced its balance sheet.

Market expectations for rate hikes

At present, the markets do not foresee another rate hike in September, but there is a 50-50 expectation of a final increase in November.

Powell did not give a clear indication of the future decision or suggest a rate cut.

However, he did highlight the risk of robust economic growth despite expectations of a recession.

Powell provided more insight into the factors that will shape policymaking, including a focus on core inflation and the personal consumption expenditures price index.

He dismissed the idea of raising the inflation target and did not address the debate over the natural rate of interest.

Powell also pointed out that the previous tightening moves have not yet fully impacted the economy.

Market reactions and economic trends

Following Powell’s comments, the U.S. dollar has risen for the sixth consecutive week.

His remarks on high inflation and the potential for further rate increases have led to a rise in the dollar index, which measures the U.S. currency against six rivals.

This index has reached its highest level since March 16.

Two Federal Reserve officials have welcomed the increase in bond market yields as a complement to the central bank’s efforts to slow the economy and bring inflation back to the 2% target.

Additionally, data indicates a decrease in the number of Americans filing new claims for unemployment benefits, suggesting a positive economic trend.

Despite strong economic data easing fears of an imminent recession, investors remain wary about the extended period of higher interest rates.

The market anticipates the central bank to start cutting rates in May of next year, but there is skepticism due to the current economic landscape.

Futures predict the Fed’s overnight lending rate to remain above 5% through June 2024, with expectations of about 100 basis points of rate cuts in the second half.

Following Powell’s comments, the euro and sterling fell against the dollar, while the dollar rose against the yen.

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cnbc.com
– Federal Reserve Chair Jerome Powell calls for vigilance in the fight against inflation and warns of potential interest rate increases.
– Powell acknowledges progress but states that inflation is still above the desired level.
The Fed remains flexible but shows no indication of easing monetary policy.
– Powell emphasizes the need for sustained progress in reducing inflation.
– Risks are two-sided, with dangers of both doing too much and too little.
– Markets react with volatility, but Powell’s remarks are seen as less hawkish than expected.
The Fed has implemented 11 interest rate hikes, bringing the key interest rate to its highest level in over 22 years.
The Fed has reduced its balance sheet significantly.
– Markets currently do not expect another rate hike in September but anticipate a 50-50 chance of a final increase in November.
– Powell does not provide a clear indication of the future decision.
– Powell does not suggest a rate cut.
– Powell highlights the risk of strong economic growth despite recession expectations.
– Powell provides more detail on the factors that will influence policymaking, including the focus on core inflation and the personal consumption expenditures price index.
– Powell rejects the idea of raising the inflation target.
– Powell does not address the debate over the natural rate of interest.
– Powell notes that the previous tightening moves have not fully impacted the economy yet.
cnbc.com
– The U.S. dollar has risen for the sixth consecutive week after remarks from Federal Reserve Chair Jerome Powell.
– Powell called inflation too high and warned that the central bank is prepared to raise rates further.
The dollar index, which measures the U.S. currency against six rivals, reached its highest level since March 16.
Two Federal Reserve officials welcomed a jump in bond market yields as something that could complement the central bank’s work to slow the economy and get inflation back to the 2% target.
– Data showed that the number of Americans filing new claims for unemployment benefits fell last week.
– Strong economic data has eased worries of an impending recession, but investors are cautious about the U.S. central bank keeping interest rates higher for longer.
The market expects the central bank to begin cutting rates in May next year, but some are skeptical of this given the current economic picture.
– Futures are pricing the Fed’s overnight lending rate to stay above 5% through June 2024, with about 100 basis points of rate cuts in the second half.
The euro and sterling slipped against the dollar, while the dollar rose against the yen.

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