Federal Reserve Chairman Jerome Powell’s speech at the annual Jackson Hole Symposium was in line with what had been predicted by much of the market. a president The monetary authority gave few explicit indications of what the US central bank should do in the short term. Future decisions on interest rates will continue to depend on economic indicators, especially employment and inflation.
As expected, Powell reiterated the Fed’s commitment to prioritizing the fight against inflation. He didn’t repeat the tune, but doves (softer with regard to inflation), which he adopted after the last decision by BC, when interest rates rose 75 basis points, although he said that at some point it would be appropriate to reduce the pace of tightening, without saying when.
However, the general opinion of the market was that the Fed Chairman’s speeches were harsh (or extremist) and who showed that policies, if necessary, would restrain growth until inflation hits the target, which could affect growth in the United States.
Looking at the short-term policy trajectory, the president again emphasized the Fed’s data dependence, but was clearly open to a ‘too big’ rate hike (by 75 basis points). To us, this suggests that the committee looks lower Alarmed about achieving a third significant rise in a row than we expected,” Morgan Stanley analysts wrote.
The bank sees more risk from a 75 point rise at the September Open Market Committee (FOMC) meeting, but maintains its expectation that the monetary authority will raise interest rates by 50 points.
Regarding consumer price inflation for July, which was flat, Powell said the data is welcome, but well below what the committee considers to be a reversal of course.
“If the next inflation report does not give very clear indications that rates are slowing significantly, I think the Fed should continue with its plan to adjust interest rates by another 75 basis points,” says Gustavo Cruz, strategist at RB Bank.
Cruz thinks Powell’s message was harsher, although president Use several euphemisms to talk about the Fed’s next steps. “My understanding is that the market, when pricing 3.5% interest by the end of the year, looks small. Everything is moving towards at least 4%,” says the economist.
Read more: Philadelphia Fed official talks about raising interest rates to the cap and leaving it there for a while
An Atlanta Fed official says it is leaning toward a 50 basis point rate hike in September
Angelo Polidoro, an economist at ASA Investments, explains that the Fed is not committed to a final rate. The goal of reducing inflation is the priority. If rates just go down with interest rates at 4.5%, for example, that’s where the Fed is going to take interest rates,” he says.
Nicole Kretzman, chief economist at Upon Global Capital, estimates there was no ambiguity in the letter president In Jackson Hole. “The message was very clear in indicating that interest rates should remain at a restricted level for an extended period, and that the rate should not be lowered prematurely,” he says.
The rate of inflation observed by the Fed in July decreased
This morning, ahead of Powell’s expected speech, the US Consumer Expenditure Price Index, which is the Fed’s preferred measure of inflation, was released. The core index rose 0.1% in July month-on-month and 4.6% year-on-year, according to data from the US Department of Commerce.
As a result, the index slowed down compared to June (when it rose 0.6% m/m and 4.8% y/y) and fell short of market expectations (which predicted a 0.3% monthly increase and a 4.7% annual increase). , according to Refinitiv).
Core personal consumption expenditures exclude food and energy prices, which are more volatile. Looking at these prices, US consumer inflation (as measured by PCE) was -0.1% on a monthly basis and 6.3% on an annual basis. In other words, there was a price deflation.
“Better than expected personal consumption spending reduces some pressure on the Fed to make a 75 basis point adjustment at the next meeting. As we said, we believe the FOMC will raise rates by 50 basis points in September and end the tightening when the rate reaches 3.25 % in November. However, we saw a 25 basis point increase risk in December’s increase last week,” explained Francisco Nobre, an economist at XP, in an analysis ahead of the Fed’s speech.
It’s worth noting that, as Powell noted in today’s speech, the new data will be closely watched by investors to get a better definition of what the next steps of the Federal Reserve’s monetary policy will be, with August employment data and inflation this month. .
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