Federal Reserve (Fed) Chairman Jerome Powell said on Wednesday (30th) that the Fed may slow down the pace of raising interest rates as early as December, but at the same time emphasized that interest rates will continue to rise in the future, and interest rates will remain in a restrictive range for a period of time Time to beat inflation.
Speaking at the Brookings Institution in Washington, Powell said the time to slow the pace of rate hikes might come as soon as the December meeting. 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 much 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 mentioned that although 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 shrinking balance sheets usually take time to spread to the entire financial sector. system, monetary policy may remain at a level that restricts the economy for a period of time until there is substantial progress in inflation. Still, it makes sense to slow down the pace of rate hikes when approaching a level of restraint sufficient to bring inflation down.
Powell said the Fed forecast its preferred personal consumption expenditures (PCE) price index for October to increase by 6% year-on-year, and core PCE to increase by 5% year-on-year, which is roughly in line with economists’ forecasts.
He believes that there is not yet enough strong evidence to convince people that inflation will decelerate soon, and the path of future inflation is still highly uncertain. Although monetary policy has been tightened and economic growth has slowed in the past year, it is declining Notable progress has yet 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,” although he acknowledged that the odds were shrinking.
Job market cools down
On the labor market, Powell cited the JOLTS report earlier on Wednesday saying it had seen the first signs of a slowdown in labor 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 further elaborated on the reasons why the labor participation rate remains at a low level. He believes that it is due to the wave of retirements during the new crown epidemic. Among the labor gap of more than 3 million, these retirees may account for more than 2 million.
Terminal interest rates may be slightly higher than FOMC’s previous forecast
As for the terminal rate, Powell forecast that it might be “slightly higher” than the 4.6% forecast by the Federal Open Market Committee (FOMC) in September. According to CME Group data, the market expects the terminal rate to be between 4.75% and 5%.
As soon as Powell’s remarks came out, the market’s expectations for the Fed to raise interest rates by 2 yards (50 basis points) in the December meeting were consolidated. Prior to this, the Fed had raised interest rates by 3 yards (75 basis points) for four consecutive times.
Market Reaction
The news that the Fed may slow down the pace of raising interest rates in December at the earliest made the major US stock indexes turn up during the session. before the deadline,Dow Jones Industrial Averagerose more than 400 points or nearly 1.3%,Nasdaq Composite Indexrose more than nearly 350 points or 3.1%,S&P 500 Indexrose more than 80 points or nearly 2.1%,Philadelphia SemiconductorThe index rose more than 100 points, or nearly 4.1%.U.S. 10-Year Treasury Bond Yieldanddollar indexThe gains stalled, falling to 3.7% and 106.015 respectively.
CME Group (CME) FedWatch Tool shows that the US federal funds rate futures market predicts that the probability of the Fed raising interest rates by 2 yards in December is 77%, and the probability of raising interest rates by 3 yards is 23%. In addition, the current market estimates that the end-point interest rate next year will fall in the range of 4.75% to 5%.
