The Chairman of the Federal Reserve (Fed) Jerome Powell said on Wednesday (30th) that the Fed could slow the pace of raising interest rates as early as December, but at the same time stressed 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 rate hike could 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 many interest rate increases 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 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 shrinking balance sheets usually take time to spread. to the entire financial sector. system, monetary policy can remain at a level that constrains the economy for a period of time until there is a significant increase in inflation. Still, it makes sense to slow the pace of rate hikes while approaching a level of restraint sufficient to bring down inflation.
Powell said the Fed forecast its preferred personal consumption expenditure (PCE) price index for October to increase 6% year-on-year, and core PCE to increase 5% year-on-year, which is roughly according to economists’ forecasts.
He believes that there is not yet enough strong evidence to convince people that inflation will slow down soon, and the future path of inflation is still very uncertain. Although monetary policy has been tightened and economic growth has slowed down in the last year, it is declining. no progress has yet been made in terms of inflation.
While economists see a recession more likely in the next 12 months, Powell said a so-called soft landing was still “highly likely” and “still achievable,” although he acknowledged that the odds are shrinking.
The job market is cooling down
On the labor market, Powell referred to a JOLTS report earlier on Wednesday saying he had seen the first signs of a slowdown in labor demand. The data showed that there was an average of 1.7 vacancies per jobseeker in October, down from an average of 1.9 vacancies in September.
Ball also elaborated on the reasons why the labor participation rate remains low. He believes it is due to the wave of retirements during the new corona epidemic. Among the labor gap of more than 3 million, there may be these retirees account for more than 2 million.
Terminal interest rates may be slightly higher than the previous FOMC forecast
As for the final rate, Powell predicts it could 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 final rate to be between 4.75% and 5%.
As soon as Powell’s comments came out, market expectations were reinforced for the Fed to raise interest rates by 2 yards (50 basis points) at the December meeting. Prior to this, the Fed had raised interest rates by 3 yards (75 basis points) ) for four consecutive times.
Responding to the Market
The news that the Fed could slow the pace of interest rate hikes in December at the earliest means that the major US stock indexes are reaching during the session. Before the deadline, the Dow Jones Industrial Average rose more than 400 points or nearly 1.3%, the Nasdaq Composite Index rose more than 350 points or 3.1%, the S&P 500 Index rose more than 80 points or nearly 2.1%, and Semiconductor Philadelphia The index rose more than 100 points, or almost 4.1%. The US 10-year Treasury yield and the US dollar index declined gains, falling to 3.7% and 106.015, respectively.
The CME Group’s (CME) FedWatch Tool shows that the US federal funds rate futures market predicts a 77% chance that the Fed will raise interest rates by 2 lat in December, and the probability of a rate hike 3 yards is 23%. In addition, the current market estimates that next year’s end point interest rate will fall in the range of 4.75% to 5%.
