Federal Reserve (Fed) Chairman Jerome Powell said on Wednesday (30) that the Fed may slow the pace of interest rate hikes as early as December, but at the same time stressed that interest rates will continue to rise going forward and interest rates will remain in a tight range for a period of time to beat inflation.
Speaking at the Brookings Institution in Washington, Powell said the time to slow the pace of rate hikes could come as soon as the December meeting takes place. Powell said that given the Fed’s progress in tightening monetary policy, the timing of policy adjustments is far more important than the question of how many interest rate hikes are needed to control inflation and how long they will remain restrictive.
There is still a long way to go to restore price stability
In his speech, Powell said that while there have been some promising developments in inflation recently, there is still a long way to go to restore price stability and policy measures such as raising interest rates and tightening Since balance sheets usually take time to spread to the financial system, monetary policy can remain at a level that constricts the economy for a period of time until there is substantial progress in inflation. However, it makes sense to slow the pace of rate hikes as we approach a level of containment sufficient to bring inflation down.
Powell said the Fed expects its preferred personal consumption spending (PCE) price index for October to rise 6% year over year and core PCE to rise 5% year over year, which is roughly in line with economists’ forecasts.
He believes that there is not yet enough evidence to convince people that inflation will slow down anytime soon and that the path of future inflation is still very uncertain. Although monetary policy has been tightened and economic growth has slowed over the past year, he is decreasing. progress still needs to be made on the inflation front.
While economists see a recession more likely in the next 12 months, Powell said a so-called soft landing was still “very likely” and “still achievable,” though he acknowledged the odds were getting smaller.
The job market cools down
On the job market, Powell cited the JOLTS report Wednesday as saying he’s seen early signs of a slowdown in job demand. The data showed that there were an average of 1.7 job vacancies per job seeker in October, down from an average of 1.9 job vacancies in September.
Ball also elaborated further on the reasons why the job participation rate remains at a low level. He believes it is due to the surge in retirements during the new corona epidemic. Among the job gap of more than 3 million, these retirees can represent more than 2 million.
Terminal interest rates could be slightly higher than previous FOMC forecasts
As for the terminal rate, Powell forecast that it could be “slightly higher” than the 4.6% expected by the Federal Open Market Committee (FOMC) in September. According to CME Group data, the market expects a terminal rate between 4.75% and 5%.
As Powell’s remarks came out, market expectations solidified that the Fed would raise interest rates by 2 yards (50 basis points) at its December meeting. Prior to that, the Fed had hiked interest rates by 3 yards (75 basis points) ) four consecutive times.
Market reaction
News that the Fed may slow the pace of interest rate hikes as late as December sent major US stock indexes higher during the session. before the deadline,Dow Jones Industrial Averagerose more than 400 points or nearly 1.3%,Nasdaq Composite Indexincreased by more than nearly 350 points or 3.1%,S&P 500 indexrose more than 80 points or nearly 2.1%,Semiconductor PhiladelphiaThe index was up more than 100 points, or nearly 4.1%. NOI. 10-year Treasury bill yieldAnddollar indexThe gains stalled, falling to 3.7% and 106.015 respectively.
CME Group’s (CME) FedWatch tool shows that the US federal funds rate futures market expects the probability of the Fed raising interest rates 2 yards in December is 77%, and the probability of raising interest rates 2 yards in December is 77%, and the probability of 3 yard interest is 23%. Furthermore, the current market estimates that the final interest rate will fall between 4.75% and 5% next year.
