Federal Reserve (Fed) Chairman Jerome Powell said on Tuesday (7th) that the easing of inflation is in a very early stage. This may be a long process, the process may be bumpy, and interest rates must be kept at restrictive levels for a period of time. In the labor market, Powell said that if the strong employment data continues, further interest rate hikes will be required to cool inflation, and borrowing costs may reach a peak higher than the Fed’s previous forecast.
Inflation has started to ease, but it will take time
In an interview with the Economic Club of Washington, Powell said the “disinflationary process” had already begun, and it started in the commodity sector, which accounts for a quarter of the U.S. economy. However there is still a long way to go and these are very early stages.
“Our message (at the last meeting) was that this process (disinflation) is likely to take quite a while and it won’t be smooth, there may be bumps in the road, but as we said , need to raise rates further and keep policy at restrictive levels for some time.”
In his speech, Powell did not indicate when interest rate hikes would stop, noting that it may take until next year for inflation to reach the Fed’s comfortable level. Powell predicts that this year will be a year of sharp decline in inflation, and also predicts that the inflation rate will fall by nearly 2% next year instead of this year.
Strong labor market calls for further rate hikes
Powell also said that the unusually strong labor market may require further rate hikes, and that more measures may have to be taken if conditions remain hot going forward.
And when Powell was asked if the employment report came out before the monetary policy meeting, whether it would influence the Fed to choose to raise interest rates by two yards (50 basis points) instead of one yard (25 basis points), he said that unfortunately there was no way to do so .
“The reality is we’re going to be reacting to the data, so if you get something like strong labor market data or higher inflation data, you may need to do more and raise rates much more than the market expects,” Powell said. He sees easing labor market pressures as part of the answer to cooling inflation in core services, excluding housing.
Foreign media pointed out that the Fed’s inflation target is 2%, but judging from the current multiple indicators, the inflation rate is much higher than this target. The January non-agricultural report released last week showed that the number of new jobs reached 517,000, far exceeding market expectations of 185,000, and the unemployment rate also hit a 53-year low at 3.4%.
Market Reaction
before the deadline,Dow Jones Industrial Averagefell nearly 120 points or nearly 0.4%,Nasdaq Composite Indexrose more than .6%,S&P 500 Indexup nearly 0.1%,Philadelphia SemiconductorThe index rose more than 1.6%, of whichDow Jones Industrial Average、Nasdaqindex andS&P 500 IndexIt rose briefly during Powell’s speech, but then the gains quickly narrowed,Dow Jones Industrial AverageIt turned black from the early decline and then turned black.
On the other hand, the United States 10-Year Treasury Bond YieldSoared to 3.66%,dollar indexIt rose to 103.53.dollar indexBefore Ball’s talk, it approached the 104 level, setting a new high since January 6 for the second consecutive day. It rose by more than 0.3% in the day. A new low, down nearly 0.6% on the day.
