Powell Delivers – The Fed Chair’s Hawkish Address
As of late, markets have seemed to revolve around just one man, with millions of eyes and ears tracking exactly what he has to say. This man is Jerome Powell, who for those who do not know, is the Chairman of the Federal Reserve. Tuesday marked the newest address by the Fed Chair, however, the stance taken was quite different than his previous remarks. With recent job data signaling a robust and growing labor market, Powell exclaimed that interest rates will most likely rise higher than what was previously agreed upon. He continued to state that the most recent data for January came much stronger than expected, warranting Fed officials to pursue tighter monetary policies to combat high inflation.
Since the 1990s, American economists determined that a steady inflation rate of 2% was most attractive to control the growth of the economy. Now, the same policy applies, however, several experts suggest it may take years to return to this ideal number. As of January, the U.S. inflation rate retreated to 6.4%, going down 2.1 percentage points since July. Despite the progress in disinflation, the Federal Reserve is still 4.4 percentage points, or 220%, over its target levels. In December, the Fed estimated their target federal funds rate would reach a high of 5.5% to combat inflation, however, Powell now suggests this number may rise, with more pressure on companies and the overall U.S. economy. Nevertheless, this is not certain, as this week’s new labor reports for February can reverse trends seen in January, leading the Fed to revert to their initial target for interest rates. Regardless, the next Federal Reserve meeting to raise interest rates will be on March 22, when investors will be waiting to see whether they raise or solidify their targets.
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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.
