Jerome Powell’s Inflation updates, The Federal Reserve chairman said a December rate-hike slowdown is possible.
Topics
Slowing December Rate-Hikes
The Fed’s Gradual Rise in Rates
The Fed’s New Plan
Ahmed Osama Market Review at CNBC Arabia
Slowing December Rate-Hikes
Jerome Powell, the Chairman of the Federal Reserve, recently cautioned that inflation is still a problem in the United States.
He said that a slowdown in rate hikes does not mean the increases will stop entirely.
This would be good news for investors, as it would mean that interest rates would remain low.
This could help to spur economic growth and create more opportunities for investment.
Powell’s remarks come as inflation has been rising in recent months.
The Consumer Price Index (CPI) rose 2.3% in April from a year earlier,
while the Personal Consumption Expenditures (PCE) price index –
the Fed’s preferred measure of inflation – increased 1.6%.
The Fed has raised interest rates three times since December 2015 and is widely expected to do so again this month.
However, Powell said that future rate hikes could be slower if inflation remains tame.
With Powell signalling that rate hikes could be slowed down,
if necessary, it appears that the Fed is committed to keeping economic growth
on track without stifling it with too much monetary tightening.
“We will be paying close attention to incoming data
and other developments as we formulate our views on appropriate monetary policy,” Powell said.
“If developments emerge that cause us to question our outlook, we will respond accordingly.”
The Federal Reserve’s Jerome Powell said Wednesday that the central bank is “a long way” from reaching its goals on inflation and employment, indicating that interest rates will remain low for the foreseeable future.
The Fed’s Gradual Rise in Rates
In remarks emphasizing the work left to be done in controlling inflation,
Powell said that issue was “far less significant than the questions of how much further we will need to raise rates to control inflation,
and the length of time it will be necessary to hold policy at a restrictive level.”
Powell’s comments suggest that the Fed is in no hurry to raise rates even as unemployment falls and economic growth picks up.
That could mean good news for borrowers but bad news for savers who have been struggling with low-interest rates.
The Federal Reserve is committed to keeping interest rates high until inflation is under control.
This means that even though the economy may slow down next year,
the Fed will not be cutting rates. Instead, they will keep rates at a restrictive level in order to get inflation under control.
He said curing inflation “will require holding policy at a restrictive level for some time,”
and he added “We will stay the course until the job is done,” Powell said,
noting that even though some data points to inflation slowing next year,
“We have a long way to go in restoring price stability
Despite the tighter policy and slower growth over the past year,
we have not seen clear progress on slowing inflation.” This comment sent shockwaves through the markets,
as investors had been expecting the Fed to begin cutting rates next year.
But now it looks like we could see rates stay flat or even rise further, which would be bad news for the economy.
So, what does this all mean for investors? Well, it depends on how you’re positioned.
If you’re invested in stocks, then higher interest rates could hurt valuations and cause market volatility.
The Fed’s New Plan
Either way, it’s important to keep an eye on how this all plays out over the coming months.
The Fed’s comments today have definitely thrown a wrench into market expectations,
and it’ll be interesting to see how things unfold from here.
The central bank has been gradually raising rates since December 2015 to
normalize monetary policy after years of near-zero rates following the financial crisis.
Policymakers have pencilled in three rate hikes for this year and four more next year.
But with inflation remaining below the Fed’s 2% target,
some economists say the central bank could slow the pace of hikes next year.
The central bank has been gradually raising rates since December 2015
to normalize monetary policy after years of near-zero rates following the financial crisis.
“You can’t keep raising rates as quickly as they were doing it,”
said Rick Meckler at Cherry Lane Investments in New Vernon, New Jersey.
“That said, investors always like the comfort of hearing it directly from the (Fed) chair.”
Policymakers have pencilled in three rate hikes for this year and four more next year.
But with inflation remaining below the Fed’s 2% target,
some economists say the central bank could slow the pace of hikes next year.