Fed Chair Jerome Powell refuted Wall Street's growing expectations of a rate cut in the first half of 2024, saying the committee would proceed cautiously with borrowing costs at a 22-year high, but maintained the option of further rate hikes.
Zhitong Finance and Economics learned that on Friday,Powell noted that despite significant progress in bringing inflation down to its 2% target, the bank is ready to tighten monetary policy further if necessary。"We are prepared to tighten policy further if needed. ”
Powell saidIt is too early to conclude that the Fed has achieved a sufficiently tight monetary policy stance, and it is not time to speculate on when interest rate cuts will begin。Especially given the Fed's preferred measure of inflation, which remained at 3 in October after excluding volatile food and energy**5%。"We have to restore stability, because stability is really the cornerstone of the economy. ”
He noted that he and other Fed policymakers are proceeding cautiously, making decisions on a meeting-by-meeting basis based on "the overall picture of all the incoming data" and the balance of risks. This is partly because Powell believes that the 11 rate hikes the Fed has implemented so far have put monetary policy "into tightening territory," but the full effect of rate hikes may not yet be fully felt.
In this speech, Powell once again acknowledged that the risk of not raising interest rates enough to sustainably cool inflation and the risk of an economic downturn due to excessive tightening is becoming more balanced. "Policy is at a tightening level, which means it's dampening the economy. Inflation is still well above target, but it is moving in the right direction. So we think it's time to tread carefully. ”
The next FOMC meeting is scheduled for December 12-13 ET. The market is expected to pause rate hikes again.
Jeffrey Roach, chief economist at LPL Financial, noted that while Powell's stay-pertinent remarks curbed some optimism from Fed Governor Chris Waller earlier this week, markets seem to believe that Powell's tone is moving closer to the ** camp.
Roach believes traders have noticed a subtle change in Powell's tone. A few weeks ago, Powell said the policy was restrictive. Today, he noted that policy "has entered restrictive territory", a subtle but perhaps critical shift.
José Torres, senior economist at Interactive Brokers, believes investors may be in denial. "Maybe investors were unimpressed by his remarks and hoped that he was about to become more ** and reflect that sentiment at the next Fed meeting on December 13," he said. ”
Perhaps more explicit is the uncertainty surrounding the economic outlook. Powell said on Friday that the economic landscape today is somewhat unique since the start of the pandemic. When the Fed tried to bring down high inflation in the past, it usually led to massive job losses. But that hasn't happened yet. "We've always thought ......," Powell saidThere's a path to get inflation back to 2% without mass unemployment, and I still believe that, and I've always believed in that, and we're on that path. ”
Powell noted that the economy has repeatedly surprised Fed policymakers and all others. In particular, in terms of consumer spending, which accounts for about 70% of economic activity. Powell noted that COVID-era savings and stimulus have largely driven high consumer spending in recent years. But as credit card balances grow and defaults rise, Powell said consumer spending and the broader economy may be cooling. The extent of the economic slowdown is still unknown.