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US Federal Reserve Chair Jerome Powell Signals Potential Interest Rate Hikes to Contain Inflation

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US Federal Reserve Chair Jerome Powell has suggested that the central bank may need to raise interest rates further to control inflation. In a speech at the Jackson Hole Symposium, Powell highlighted the need for the Fed to bring inflation down to its 2% target. He acknowledged the declines in the pace of price increases over the past year but emphasized that the US economy has been performing better than expected. The speech has prompted speculation about the future path of interest rates.

Powell’s comments come at a time of uncertainty in global markets, with concerns about the impact of global trade tensions and slowing global growth. The US Treasury 2-year yield rose by 5 basis points following the speech.

While Powell’s speech was viewed as less stern than last year’s, it still had a hawkish tilt. He stated that it is too early to declare victory on inflation and that restrictive monetary policy is necessary to achieve progress. Powell also made it clear that the 2% inflation target will remain in place, dismissing suggestions to increase the target.

Market reactions to the speech were mixed. Some investors interpreted Powell’s remarks as signaling a need for further rate hikes, while others saw them as indicating a more cautious approach. Overall, investors appeared to be comfortable, especially after the recent sell-off in August.

Economists and market experts offered varied assessments of Powell’s speech. Some believed that the market underestimated the potential for more rate hikes, while others saw the speech as largely non-informational. There were also observations that Powell was walking a tightrope, trying to strike a balance between acknowledging progress in reducing inflation and emphasizing the need for caution.

The general consensus was that Powell’s speech did not provide clear guidance to the market. The Fed’s future decisions will depend on incoming data, particularly labor and economic indicators. The possibility of a pause in rate hikes in September was mentioned, but the overall sentiment was that the Fed is likely to remain more hawkish than dovish until inflation is closer to its target.

Powell’s speech had an impact on global markets, with investors closely watching for any hints about the future direction of interest rates. The market volatility seen in August also influenced reactions to the speech. Analysts noted that Powell’s message was largely as expected, but there were indications that the Fed could raise rates if necessary. This uncertainty led to intraday volatility in the markets.

Overall, Powell’s speech highlighted the Fed’s commitment to controlling inflation and the need for further progress. It remains to be seen how the central bank will respond to incoming data and whether more rate hikes are on the horizon.

More detail via Reuters here… ( Image via Reuters )

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