- Powell stated that current levels are still “quite above,” citing a yearly rate of 2.5% for core inflation over the past six months.
- The FOMC has kept interest rates steady in its past two meetings, with many officials expressing the belief that the federal funds rate is likely where it should be or near it.
- Powell said, “The strong measures we have taken have pushed our policy rate well into restrictive territory, meaning tight monetary policy is exerting downward pressure on economic activity and inflation.”
Federal Reserve Chairman Jerome Powell makes a critical speech as December begins: Will the Fed make a policy change? Here are the details!
Fed Chairman Jerome Powell Makes Statements
Federal Reserve Chairman Jerome Powell rejected market expectations and dismissed expectations of aggressive interest rate cuts, stating that it is still too early to declare victory on inflation despite a positive series of recent price indicators.
Despite positive indicators regarding prices recently, Powell, the leader of the central bank Federal Open Market Committee (FOMC), said the committee plans to keep the policy “restrictive” until they are convinced that inflation is firmly heading back to 2%.
Speaking in a prepared speech for an audience at Spelman College in Atlanta, Powell said, “It would be too early to conclude that we have successfully achieved a sufficiently restrictive situation or to have confidence in when policy could ease. We are ready to further tighten if policy is deemed appropriate.”
Expectations that the Fed will complete its interest rate hikes and move into a easing mode in 2024 have contributed to a strong rally that has lifted the Dow Jones Industrial Average more than 8% in the past month, reaching a new high for 2023.
The Commerce Department’s report on Thursday showed that the Fed’s preferred inflation measure, personal consumption expenditures (PCE) prices, rose 3% from a year earlier, but the core measure, excluding volatile food and energy prices, increased 3.5%. Recent sharp declines in energy have been the primary driver of most easing in inflation.
Powell said that current levels are still “quite above,” stating that core inflation has been running at an annual rate of 2.5% over the past six months. Powell said, “Low inflation readings in recent months are welcome, but this progress must continue because we need to get to our 2% target.”
After reaching its highest level since the early 1980s, when inflation hit its highest level, the Fed took a series of steps, including 11 interest rate hikes, and raised the policy rate to the highest level in the target range of 5.25-5.5%. The FOMC has kept interest rates steady in its past two meetings, with many officials expressing the belief that the federal funds rate is likely where it should be or near it. The next Fed meeting will be held on December 12-13.
Powell said, “The strong measures we have taken have pushed our policy rate well into restrictive territory, meaning tight monetary policy is exerting downward pressure on economic activity and inflation.” He added, “It is thought that monetary policy affects economic conditions with a delay, and it can be said that the full effects of our tightening have probably not been felt yet.”
Traders are expecting rate cuts
According to CME Group, market prices on Friday morning indicated that the market believes the Fed has indeed gone through with an interest rate hike and could start cutting rates in March 2024. Moreover, futures contracts suggest a total cut of 1.25 percentage points by the end of the year; this is equivalent to a reduction of five quarter-percentage points. However, Powell or other officials have not given any indication that they are considering a cut, and the chairman preferred to remain data-dependent rather than committing to a predetermined path for future decisions.
Powell said, “Traditionally a tough market, but a slowing pace of job creation helps balance supply and demand.” He also noted that easing supply chain pressures have eased inflationary pressures and the risks of raising interest rates too much or too little have become “more balanced.” While Powell emphasized the importance of being aggressive when raising interest rates, he also acknowledged that the risks have become more balanced.
During Powell’s speech, the price of Bitcoin showed a slight increase. Bitcoin, which was at $38,436 before Jerome Powell’s speech, rose to $38,715 with a 0.70% increase. The current price of BTC is trading at $38,690.
