The Powell Effect – New Comments Signal for Smaller Rate-Hikes
After a rough week for markets, investors were finally given some clear guidance for the Federal Reserve’s plan to curb inflation in the coming months. Federal Reserve Chair Jerome Powell spoke on Wednesday in a highly anticipated address that seemed to be exactly what investors were waiting to hear. Although nothing is official until the Fed’s actual decision in two weeks, Powell signalled an advance to slow down the pace of interest rate hikes, following their four consecutive 75 basis point hikes. As the effects these rate raises have may take a while to be felt in the economy, Powell claimed that “the time for moderating the pace of rate increases may come as soon as the December meeting”.
Currently, the benchmark rate is in the range of 3.75% and 4%, up from 0.25% and 0.5% in March of this year. Regardless, markets rallied significantly throughout Powell’s speech, as investors started to price in the new and improved chance of a half of a percentage point hike, reinstating the idea that inflation has peaked from its June high of 9.1% year over year. However, the largest data measure that is still catching Powell’s and the Fed’s eyes is the labor market, which shows several companies have not let off hiring with a jobless rate between 4% and 5%. Nevertheless, investors will be waiting to see how these high-interest rates will ripple in the economy, as the Federal Reserve still plans to increase the current Federal funds rate next year, up between a range of 5% to 7%.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
