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Jerome Powell Signals Fed Prepared to Slow Rate-Rise Pace in December

Fed chair says a labor-market slowdown will be needed to bring inflation back to the central bank’s 2% target

More to follow...


  • edited November 2022

    Following are unedited excerpts from a current report in The Wall Street Journal:

    Updated Nov. 30, 2022 1:37 pm ET
    WASHINGTON—Federal Reserve Chair Jerome Powell indicated the central bank is on track to raise interest rates by a half percentage point at its next meeting, stepping down from an unprecedented series of four 0.75-point rate rises aimed at combating high inflation.

    Mr. Powell, in a speech Wednesday, said an overheated labor market needed to cool more for the Fed to be confident that inflation would make durable downward progress toward its 2% goal.

    Because the Fed has raised rates rapidly and it takes time for those moves to influence the economy, it would make sense for officials to slow rate increases, he said at an event at the Brookings Institution. “The time for moderating the pace of rate increases may come as soon as the December meeting,” he said.

    Mr. Powell reviewed signs of progress on the inflation fight, including a slowdown in interest-rate sensitive sectors of the economy such as housing and improving supply-chain conditions. But he said that declines in goods prices and rents, which have contributed notably to inflation over the last 18 months, might be insufficient if firms don’t slow their hiring.

    “The labor market … shows only tentative signs of rebalancing, and wage growth remains well above levels that would be consistent with 2% inflation,” Mr. Powell said. “Despite some promising developments, we have a long way to go in restoring price stability.”

    Fed officials lifted their benchmark rate by 0.75 percentage point on Nov. 2 to a range between 3.75% and 4%. Many officials have signaled they are leaning toward approving a 0.5-point increase at their Dec. 13-14 meeting. They had held the rate near zero until March.

    A big question now for the Fed is how much farther to keep raising rates. Some officials are concerned about causing unnecessary damage to the economy and labor market because it takes time for the full effects of those increases to ripple through the economy.

    Mr. Powell repeated his earlier view that officials were likely to raise rates to a somewhat higher level early next year than they had anticipated in projections released after their September meeting, when most officials saw their benchmark rate rising to between 4.5% and 5%.

    Steps to boost workforce participation aren’t controlled by the Fed and wouldn’t be able to take effect rapidly enough to address the current bout of inflation, Mr. Powell said.

    The upshot is that Fed policy will seek to slow inflation and wage growth by reducing demand for workers, a subject that Mr. Powell addressed delicately on Wednesday. “For the near term, a moderation of labor demand growth will be required to restore balance to the labor market,” he said.

    While strong wage growth “is a good thing,” he implied it is too high right now to support a return to the 2% inflation rate the Fed targets. “For wage growth to be sustainable, it needs to be consistent with 2% inflation,” he said.

    Separately, Treasury Secretary Janet Yellen said on Wednesday that inflation could come down without broad layoffs occurring across the economy if companies slow hiring by reducing the number of unfilled jobs they’re trying to fill.

    The U.S. unemployment rate stood at 3.7% in October. A rate between 4% and 5% would still indicate a robust labor market, she said at a New York Times event. “I think we can make a lot of progress in the labor market just on the hiring...and job opening side. I don’t think it’s necessary to see very substantial layoffs,” she added.
  • And more: Unedited excerpts from The Guardian:
    The Federal Reserve chair, Jerome Powell, indicated the central bank is preparing to slow the pace of interest rate rises as it tackles a 40-year high in inflation. But Powell warned there “was more ground to cover” and rates would stay higher for an extended period.

    In a speech to the Brookings Institution, Powell said that the Fed may increase its key interest rate by a smaller increment at its December meeting, only a half-point, after four straight three-quarter point hikes.

    But Powell also stressed that the smaller hike should not be taken as a sign the Fed will let up on its inflation fight anytime soon.

    “It is likely that restoring price stability will require holding [interest rates] at a restrictive level for some time,” Powell said. “History cautions strongly against prematurely loosening policy.”

    Powell acknowledged there had been some good news on the inflation front, with the cost of goods such as cars, furniture and appliances in retreat. He also said that rents and other housing costs – which make up about a third of the consumer price index – were likely to decline next year.

    But he warned that the Fed still sees the US’s strong labor market as an issue and that the cost of services such as dining out and healthcare are still rising too fast. “The labor market … shows only tentative signs of rebalancing, and wage growth remains well above levels that would be consistent with 2% inflation,” he said.

    “Despite some promising developments, we have a long way to go in restoring price stability,” Powell said.

    Associated Press contributed to the article
  • Hi @Old_Joe
    Thank you. Was away from the homestead, but saw the market bounce, with both equity and bonds. What you've posted and the BNN below gives me/us the overview of Powell's statements and market reactions.
    An overkill overview from BNN summary.
  • @Catch22- Yeah, I was looking to see how ASML was doing today, noticed the bounce, and said something like "what the hell?" to myself. Getting very close to break-even on that. :)
  • Still above water on TROW-but unsure what to do next !
  • It will be interesting to see what the terminal rate will be and how long it stays in place.
    The $1M question...
  • edited November 2022
    For sure. I'm definitely getting the feeling that if you want to buy CDs (and of course, other bond-like instruments) with a decent rate (close to 5%) you're not going to find much going out more than a couple of years, and I shouldn't be surprised to see fewer of those as we go forward. That inverted yield curve is really wicked.
  • edited November 2022
    After Powell's dovish comments today, the CME FedWatch shows for the next 4 FOMC meetings: 50-50-0-25 bps hikes to 5.00-5.25%; not much change from Friday when it was 50-50-25-0. But the market wanted to see things with rose colored glasses. Anyway, he used those magic words, slower pace but higher for longer.
  • edited December 2022
    SMALL CAPS ETF/ IYT (transport etf) above 200 Days MA with strong convictions (these usually get out the gate first w new baby bull) ..

    Dji SP500 NASDAQ maybe following soon

    The 20 billions $$dollars question are will they hold and melt up from here

    Market breadth extremely strong, some says may remain strong until/ after Xmas

    Next 48 hrs critical
    Watch Sp500 ~ 4100 levels extremely carefully
  • Are you saying Santa Claus is coming to town?
  • i'll be glad. i was a good boy this year. killed no one. robbed no one. bring it on, fat man!
  • Powell has been looking for short-term yield-curve inversion, in 3m-18m, 3m-3m18mForward, etc, but these data are hard to find. Today, close and easily accessible 3m-2y also inverted by 8 bps.$UST2Y-$UST3M&p=D&yr=1&mn=0&dy=0&id=p55872895334

  • Following are excerpts from a current article by Paul Krugman in The New York Times. He argues for a nominal inflation rate in the 3-4% area, which I personally believe would be acceptable. The complete article is fairly long, and if you are a NY Times subscriber, here is the link.
    Put on your statistical noise-canceling headphones, and the sound you hear is that of falling underlying inflation. Even Jerome Powell, the Federal Reserve chair, said in effect as much in his speech Wednesday.

    It’s not happening yet, but in the not-too-distant future we’ll probably see inflation fall enough that we’ll have to make some hard decisions about when to declare victory.

    About Powell’s speech: I was especially gratified to see him noting that market rents have been moderating fast, a development that will predictably lead to a falloff in official shelter inflation — which in turn plays a huge role in standard measures of underlying inflation — some time next year. Unfortunately, the chart he presented showed changes over the past year, which is too long a stretch: The big falloff in rents has taken place just over the past few months. For example, here’s rent data from Apartment List:
    Rents normally decline in the fall, but the recent decline was much bigger than seasonal factors alone can explain. So one main component of inflation is set to come way down.

    And already, if we use market rents instead of the official shelter measure, which lags rents by many months, we get “core” inflation of less than 3 percent recently.

    As it happens, a number of economists, myself included, have long argued that the 2 percent target is too low. This isn’t a radical position; many of the advocates of a 3 or even 4 percent target are as mainstream as they get.

    And the huge changes the pandemic has wrought in how we work and what we buy have shown that the problems of adjustment are even bigger than we thought, and these problems might be easier to deal with if we accepted 3 or even 4 percent inflation rather than insisting that we get it down to 2.

    Now, Federal Reserve officials really, really don’t want to talk about this. They believe that any explicit statement to the effect that 2 percent is no longer the target would damage their credibility. I understand that. But the rest of us don’t have that problem.

  • edited December 2022
    Now, Federal Reserve officials really, really don’t want to talk about this. They believe that any explicit statement to the effect that 2 percent is no longer the target would damage their credibility. I understand that. But the rest of us don’t have that problem.
    Absolutely !!!
  • 2 percent would be nice to get back to, though. The gummint pays back bonds in modestly cheaper dollars, and 2 cents on the dollar increases in prices is barely felt.
  • Thanks for sharing the data - nice to see the figure that Paul Krugman discussed earlier.

    Rent data is seldom discuss. Housing cost is the single largest expenditure on the household. Even for home owners the property tax increases every year just as the rent goes up.

    Not only the Fed missed their 2% target, they reacted too slow and not aggressively enough when inflation jumped back in 2021. Some warned inflation will rise from the supply chain issues resulting from the pandemic.
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