Chairman of the Federal Reserve (Fed)BauerIt’s not yet ready to declare victory over inflation, but carefully scrutinized by his speech at the central bank’s annual meeting in Jackson Hole on the 25th, the Fedraise interest ratesMay have been upgraded.
The Wall Street Journal (WSJ) reported that Powell’s speech on the 25th was a typical “on the one hand…on the other hand…” speech, with examples such as:
On the one hand, the virulence of the pandemic has subsided, and the Fed’s frequent interest rate hikes “have now worked together to suppress inflation”; On the other hand, “the process of fighting inflation still has a long way to go.”
On the one hand, bank credit standards have “tightened” and “industrial production growth has slowed down”; On the other hand, gross domestic product (GDP) growth is “higher than expected” and the “housing market shows signs” of recovery.
Powell’s speech was still full of “hawkish” news, including a promise to raise interest rates further if necessary. But on the other hand, Powell also said that the Fed’s position in the future is to act cautiously, which means that it is not in a hurry to raise interest rates, which means that it will not raise interest rates in September.
Why did Ball speak so vaguely?
One reason is that even if policymakers do not see the need for further rate hikes (especially if the economic impact of successive rate hikes has not yet fully manifested), they may want to keep the option of further rate hikes in the future. Want, if inflation does not decrease but increases.
The second reason is that as soon as the Fed announces that it will no longer raise interest rates, investors will immediately turn their attention to when they will start cutting interest rates, which will have a long-term effect.Rate of interestRecession and the change from tight to loose financial conditions will bring fresh impetus to the economy and hinder efforts to fight inflation. The longer the Fed remains in suspense over the possibility of further rate hikes without actually taking action, the less likely investors are to anticipate the Fed beginning to cut rates.
However, the Fed’s next move could be to cut interest rates. The current target range for the federal funds rate has been increased from 5% to 5.25%, the highest in more than 20 years. Even assuming that the current “neutral interest rate” (an interest rate level that neither stimulates nor inhibits economic growth) is higher than the pre-pandemic level, it is still higher than the Fed’s current policy interest rate target. Could be much less. In Powell’s words: “We view the current policy stance as restrictive, constraining pressures on economic sentiment, employment and inflation.”
When can interest rates be cut? It is not necessary to wait for inflation to fall to the Fed’s 2% target. As Powell reiterated on the 25th, as long as the trend towards the 2% target for inflation is clear. Even under the best of circumstances, that growth may not happen this year, but by early 2024, Powell may be ready to claim victory in the fight against inflation.
finance (tagstotranslate) interest rate hike