Powell’s Proclamations
As investors continue to speculate over the economy’s fate, the Federal Reserve Chair voiced his thoughts on the central bank’s determination to fight high inflation. On Friday, Jerome Powell delivered a fairly hawkish address at the Kansas City Fed’s annual retreat in Jackson Hole. Despite praising their successes in bringing inflation down from its record 40-year high of 9.1%, Powell reiterated that prices remain high enough for the Fed to continue to push rates further. He continued that until the Fed became confident in persistent disinflation, they would continue to raise rates further than the current federal funds rate of 5% to 5.25%. Even with core inflation decreasing steadily throughout June and July, it seems the Fed wants to be sure they can put the last nail in the coffin before accepting victory.
As Powell highlighted, the Fed is in a battle in trying to capture a “sweet spot” in monetary policy. On one side, if rates are softened or simply aren’t enough, the economy will endure high costs with major detriments to employment. On the other side, if rates are pushed higher, unnecessary harm to the economy echoing the previous spells in the financial industry would persist. This balancing act has left the Fed to proceed with caution, basing all current action on new economic data on a day-to-day basis. Although the speech was interpreted as hawkish, there weren’t any new concrete changes for the next few rate hikes of this year, leaving investors focused on this week’s employment data.
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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.
