Jerome Powell: The Federal Reserve will temporarily stop raising interest rates
Federal Reserve Chairman Jerome Powell on Thursday affirmed his happiness with the progress achieved in reducing US inflation in recent months, suggesting that the bank will not raise interest rates again unless it sees clear evidence that strong economic activity puts this progress at risk.
“Given the uncertainties and risks, and how far we have come, the FOMC is operating cautiously, with data released in recent months showing continued progress toward the Fed’s two enduring goals of maintaining stable inflation and strong employment,” Powell said in prepared remarks. “.
Powell’s statements coincided with what was issued by his colleagues at the bank in recent days, who indicated their willingness to keep short-term interest rates at their current level at their next meeting, the decision of which will be announced on November 1.
Powell and his colleagues benefited from the significant rise in long-term interest rates during the last month, as the benchmark ten-year bond yield approached 5%, which monetary policy makers in the world’s largest economy considered part of the tightening measures, which the bank is still adhering to. Rising bond yields usually cause the economy to slow, which in effect takes the place of raising interest rates, if higher yields are reflected in borrowing costs.
Powell said they remain attentive to these developments because ongoing changes in financial conditions could have implications for the course of monetary policy.
He added that decisions made about whether to raise interest rates again, and how long to keep them near current levels, will depend on the totality of available data, evolving expectations, and balancing different types of risks.
The Labor Department’s strong September employment report earlier this month and the Commerce Department’s strong retail sales report on Tuesday extended a string of surprising data, all of which were trending toward continued strength in the US economy. .
However, Powell did not mention concerns that the strength of the economy would cause the specter of inflation to return, in a way that might prompt the world’s largest central bank to raise interest rates again.
As he did in a speech last August, Powell twice used the word “could” instead of “will,” which led most analysts to believe that there would be no rate hike during the next meeting, at the very least.
Bank officials are facing a difficult situation, the complexity of which has increased with the outbreak of fires in the Middle East and the resulting rise in oil prices, in a way that may increase the rates of price increases during the coming period. In conjunction with the recovery of supply chains, demand for goods, services, and workers declined, after conditions similar to the boom that markets witnessed with the opening of the economy after the pandemic.
Powell said the Fed estimates that overall prices in September rose 3.5% from a year earlier, unchanged from August and down from a peak of 7.1% in June 2022, using its preferred measure of inflation.
Core prices, which exclude highly volatile food and energy prices, are likely to rise 3.7% in September, down from 3.9% in August and a peak of 5.6% in February 2022, he added.
Powell said that the monetary policy stance was restrictive, indicating that rising interest rates and the Federal Reserve’s initiative to shrink its balance sheet led to a slowdown in economic activity.
The 10-year Treasury yield has risen by about 1 percentage point since the Fed last raised interest rates at the end of July, a very large increase in a short time. The yield rose on Thursday to its highest level in 16 years, recording 4.99%, after Powell’s speech ended.
Although stock markets were happy with Powell’s words, and their main indices moved to the green zone during his speech, hoping that this would signal the end of the interest-raising cycle, the rise in bond yields put pressure on them again, causing the three indices to decline by nearly three-quarters of a percentage point.
2023-10-19 19:39:10
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