2023-05-19 15:32:25
Federal Reserve Chairman Jerome Powell made it clear on Friday (19th) that he is open to pausing interest rate hikes next month, saying tighter credit conditions could mean lower peak interest rates. Although Powell still emphasized the need to fight inflation, he still sent a dovish signal, and said that the future policy direction will be determined by economic data.
Speaking at a Fed meeting in Washington on Friday, Powell said the Fed has come a long way in tightening monetary policy and its policy stance is restrictive, but it is now facing delays in tightening and recent pressure on the banking sector. Uncertainty about the extent of the credit crunch, with future policy direction dependent on economic data rather than a pre-set course. “We’ve come this far and the central bank has the ability to study the data and the changing outlook and make a careful assessment,” he said.
Powell mentioned that while financial stability tools have helped stabilize conditions in the banking sector, on the other hand, developments in the banking sector have tightened credit conditions and could weigh on growth, business hiring and inflation. Therefore, the central bank’s policy rate may not need to rise as much to achieve the Fed’s inflation target, although the impact of the credit crunch remains highly uncertain.
Investors cut bets on a rate hike next month to around 17 percent after Powell’s comments, from 33 percent before the talks. CME Group’s FedWatch Tool shows that the market predicts that the probability of the Fed keeping interest rates unchanged next month is 81.5%, and the probability of raising interest rates by 1 yard (25 basis points) is 18.5%.
Powell said earlier that he could understand the harm caused by high inflation and promised that policymakers would not shrink back in controlling inflation, because failure to reduce inflation will not only prolong the economic pain, but will eventually increase the social cost.
Observers noticed that Powell was reading more of the prepared manuscripts in this talk, and emphasized many times that the economy and future monetary policy are facing more uncertainties, which shows that he is very cautious and consciously Signals the path of interest rates.
Macro analyst Cameron Crise pointed out that Powell’s comments on aggregate supply were not particularly dovish, because he mentioned: “We may definitely see continued supply chain shocks. Positive supply shocks from globalization may not be repeated, which would support higher trend levels of inflation, or a corresponding increase in the neutral rate.”
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