Federal Reserve Chairman Jerome Powell recently expressed his uncertainty regarding whether enough has been done to combat inflation. Speaking at a conference, Powell acknowledged that the Federal Open Market Committee (FOMC) is dedicated to achieving a restrictive monetary policy in order to bring inflation down to the target level of 2%.
During his speech, Powell faced a brief interruption from climate protesters who expressed their objections to the FOMC’s policies. Despite the disruption, Powell continued to highlight the progress made in decreasing inflation. Although it remains higher than desired levels, there has been a significant decline since earlier this year.
Powell reiterated that inflation continues to be a concern and the current policy is considered “significantly restrictive.” The impact of his words was immediately felt in the markets, as stocks experienced a decline and Treasury yields increased.
Investors were also warned not to expect rate cuts next year, and Powell suggested the possibility of further rate hikes if inflation were to reaccelerate. The Fed will therefore proceed with caution in its policy decisions and closely monitor any increases in Treasury yields.
Interestingly, market expectations indicate a low probability of a rate hike in December, with many anticipating rate cuts in the following year. Powell, however, emphasized the progress of the economy and expects growth to moderate in the coming quarters.
While unemployment remains low, the Fed remains vigilant about the potential impact of stronger-than-expected growth on inflation. While improvements in supply chains have helped ease inflation pressures, Powell noted that further progress may require tight monetary policy.
Lastly, Powell discussed the challenges of keeping interest rates anchored near zero and whether they are a thing of the past. Although unable to determine a definitive answer, Powell acknowledged that the Fed would continue to monitor the situation closely.
In conclusion, Federal Reserve Chairman Jerome Powell expressed uncertainty about the effectiveness of measures taken to combat inflation. Despite acknowledging the commitment to a restrictive monetary policy, Powell emphasized the need for caution and attentiveness to market reactions. The progress made in bringing down inflation was highlighted, although concerns remain regarding the potential impact of stronger-than-expected growth. The challenges of keeping interest rates near zero were also discussed, with Powell remaining unclear about their future.
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