Jerome Powell, the Chairman of the Federal Reserve, pushed back against the assumption that there would be frequent reductions to interest rates on Friday. He said that it was too early to decide whether or not the current policy was restrictive enough, or to estimate when any changes would occur. Even so, there is some evidence that the Fed may have stopped raising rates; this started in March 2022, and has had a negative effect on the economy. Powell mentioned that inflation is improving, which the market interpreted as a more favorable outlook. As a result, stocks rose and yields on government bonds dropped significantly.
Federal Reserve Chairman Jerome Powell on Friday indicated that the Federal Open Market Committee (FOMC) was not prepared to make any decisive moves on interest rates yet, remarking it would be "premature to conclude with confidence" that inflation will be kept under control. Even though there have been positive signs regarding prices recently, Powell said the FOMC is committed to maintaining a restrictive policy until there is assurance that inflation is steady at 2%. He added that the balance of risks between doing too much or too little on inflation are now close to even.Following Powell's remarks, markets responded favorably, with major averages gaining and Treasury yields decreasing significantly. Jeffrey Roach, chief economist at LPL Financial noted that the remarks were seen as being "in the dovish camp." In addition to this, the performance of the Dow Jones Industrial Average over the past month has increased by 8%, hitting a 2023 peak. Powell acknowledged that inflation is still far above the Fed's target, though recent drops in energy prices have offered some relief. He added that the full impact of the Fed's tightening has not yet been felt, with the next meeting scheduled for December 12th-13th.
Friday morning's market pricing showed that there is a possibility the Fed might commence cutting as early as March 2024, CME Group reports. Futures are predicting a total decrease of 1.25 percentage points across the board by the end of the year, amounting to five quarter percent cuts. While these are all anticipatory discussions, Powell and other Federal Reserve governors have not yet hinted or promised at such a move. The chair instead affirms that all actions depend on the incoming data, and how the future of the economy and inflation are affected by that same data. Describing the labor market state as "very strong", Powell acknowledged a reduced rate of job addition as a sign of the market's health regaining its equilibrium.
Comments