TePORT: Powell Sends Cautionary Message to Investors: Federal Reserve Chair Jerome Powell delivered a cautionary message to investors, signaling that assumptions about the end of interest rate hikes may be premature. Powell emphasized the need for further evidence of a sustained decline in inflation before the central bank considers a policy shift.
Addressing an audience at Spelman College in Atlanta on Friday, Powell stated, “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease.” Despite acknowledging that monetary policy has entered “restrictive territory,” Powell did not rule out the possibility of additional rate hikes, affirming, “We are prepared to tighten policy further if it becomes appropriate to do so.”
Powell’s cautionary message to investors came on the heels of the release of the latest data on the Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) index. The report indicated a gradual easing of inflationary pressures, with the core PCE registering at 3.5% for October, down from 3.7% in September and continuing a downward trend from the June peak of 4.3%.
Investors had anticipated a dovish turn from the Fed, with some speculating on potential rate cuts in the first half of 2024. Renowned billionaire investor Bill Ackman even went as far as predicting an earlier commencement of rate cuts in the first quarter of the same year.
The Federal Open Market Committee’s decision at its last meeting to maintain interest rates at a range of 5.25%-5.50%, a 22-year high, suggested a commitment to the current policy trajectory. The committee is set to convene for its final meeting of the year on Dec. 12-13.
Powell, in his address, emphasized the importance of sustained progress in inflation reduction. “While the lower inflation readings of the past few months are welcome, that progress must continue if we are to reach our 2 percent objective,” he asserted, pointing to core inflation running at an annual rate of 2.5% over the six months ending in October.
Anticipating a potential economic slowdown, Powell and his colleagues foresee diminishing growth and consumer spending in the coming year as the lingering effects of the pandemic wane and higher rates take a toll on economic expansion. Powell acknowledged that the full impact of the Fed’s aggressive rate hikes may not have materialized yet.
The Fed Chair maintained a cautious stance on the economic outlook, describing it as “unusually uncertain.” Powell stressed the Fed’s commitment to careful decision-making, indicating that policy adjustments would be made on a meeting-by-meeting basis.
Comments from other Fed officials echoed Powell’s cautionary tone. New York Fed President John Williams emphasized that inflation remains “too high,” emphasizing that the Fed’s work is “not nearly done.” San Francisco Fed President Mary Daly, in an interview with a German newspaper, characterized interest rates as being in a “very good place.” However, she cautioned against premature discussions about the end of rate hikes or the initiation of cuts, stating, “I’m thinking about whether we have enough tightening in the system and are sufficiently restrictive to restore price stability.”
Powell’s cautionary message to investors collectively suggest that the Fed is likely to maintain interest rates at the upcoming December meeting while refraining from declaring victory in the battle against inflation.
TePORT: Powell Sends Cautionary Message to Investors
Source: Yahoo Finance
