Federal Reserve Chairman Jerome Powell said on Thursday (8th) at a seminar hosted by the Cato Institute that the central bank will not back down until it completes its task of fighting inflation. The remarks once again exposed its hawkish stance against inflation, and also strengthened market expectations for a 3-yard (75 basis point) rate hike by the Fed in September.
Powell said the Fed needs to act decisively and forcefully on inflation, and it needs to keep moving forward until it completes the task of cooling inflation.
Ball also mentioned that the Fed has a responsibility to keep prices stable and is willing to take responsibility, noting that the longer inflation remains above the target level, the greater the risk, stressing that the Fed is firmly committed to reducing inflation and that it will not be affected by politics. Reiterating his remarks at the Jackson Hole Annual Meeting of Global Central Banks: “History strongly warns against premature easing”.
Powell said it is very important to maintain inflation expectations, and the Fed’s job is to ensure that inflation expectations are anchored. And labor market demand remains very strong, wages are rising, and hopefully there will be a period of below-trend economic growth that will bring a better balance to the labor market.
Fed officials hope for a “soft landing” for the U.S. economy, a slowdown in growth that lowers inflation while lowering job costs, but they also worry that public expectations for future prices will exceed the central bank’s 2 percent inflation target more than a year later start to rise. Officials have made clear their intention to fight the volatility by raising borrowing costs further and keeping them at that level for an extended period.
On interest rates, Powell said the relationship between money supply and inflation has been volatile, and the Fed has never explicitly tied its policy to any particular formula, so it’s uncertain what the final rate will be. On the issue of shrinking the balance sheet, Powell said that the current operating framework for shrinking the balance sheet is good, and that he is ready to adjust the size of the shrinking balance sheet according to the needs of the economy, and there is no reason to return to the level of scarce reserves.
Market Reaction
Powell put the eagle again, and U.S. stocks opened lower on Thursday. Before the deadline,Dow Jones Industrial AverageIt fell more than 100 points or nearly 0.4% to temporarily report 31,457.12 points.Nasdaq Composite IndexIt fell 50 points or nearly 0.4% to temporarily report 11,741.84 points.S&P 500 Indexfell nearly 0.4%, temporarily reported 3,965.79 points,Philadelphia SemiconductorThe index rose 0.15% to temporarily close at 2,615.50 points.
According to the CME Group FedWatch Tool, there is a 14% chance that the Fed will raise rates by 2 yards (50 basis points) in September and an 86% chance of a 3-yard rate hike.