Jerome Powell, Federal Reserve Chair, is poised to give a key policy speech Thursday afternoon in New York. The concept of "higher for longer" with regards to rates has been oft repeated in recent times, and it is anticipated that Powell will echo it. Investors are largely expecting the Fed to remain at the same rate level, yet they will be carefully listening to what Powell states for confirmation and explanation.
Chair of the Federal Reserve Jerome Powell is poised to present a potentially pivotal address tomorrow with the intention of demonstrating to markets that the central bank is fully dedicated to reducing inflation, yet could be less firm in doing so. At midday ET, Powell will be delivering his speech to the Economic Club of New York while the United States economy is at a crucial intersection. Recent inflation numbers have been increasingly positive, but bond yields have been shooting up, sending a blended signal about the imminent direction of monetary policy. Most assume that the Federal Reserve will remain without adjusting rates, yet traders will be scrutinizing Powell's words for supplementary explanation and affirmation in regard to the current circumstances and longer-term fashions. Luke Tilley, Wilmington Trust's chief economist, commented that "Powell is continually emphasizing the necessity to continue to be watchful - a completely sensible belief - and I anticipate him to keep discussing the potency of the economy and the astonishing strength of consumers in the third quarter as a peril for inflation. That should be adequate justification to persist in speaking about staying vigilant." In a nutshell, Tilley expects Powell's address to be divided into three main sections: the need to rapidly raise rates, which the Fed did; being able to locate a peak level, which is the centre of the current discussion; and determining how long the rates need to remain high to take inflation back to the 2% goal. Tilley concluded that, "Really, their ultimate objective is to keep financial conditions tight enough to lower inflation. He will be using this framework, even if he proposes a dovish stance on November 1st or December, to change the hawkishness to the third question about how long to keep the rates high."
"Higher for longer" has been frequently expressed in recent days, with Philadelphia Fed President Patrick Harker one of many to mention the term in regards to possible policy decisions. And Fed governors Philip Jefferson and Christopher Waller each furthered this notion earlier this month and Wednesday, respectively, in advocating to pause rate hikes while the effects of incoming data are assessed. Meanwhile, Powell is expected to deliver a message Thursday that conveys care to not become complacent in fighting inflation, along with details of a data-dependent focus. This echoes what New York Fed President John Williams proclaimed Wednesday, that the Fed will need to maintain a "restrictive stance of policy in place for some time" to tackle inflation.Signs of this more cautious path were seen with the Fed declining to raise their benchmark borrowing rate in September, having done so 11 times in the last 5.25 percentage points, the highest in 22 years. It is now understood that Powell will address the 10-year Treasury nearing 5%, its highest in 16 years, while aiming to emphasize that although the recent data has been stronger than expected, the sizable yield gains have tightened financial conditions, which warrants a wait-and-see approach. Evercore ISI's head of global policy and central bank strategy, Krishna Guha, additionally suggested that rates should be cut in 2024 as inflation and economic growth both decline, as a sort of "down payment".
Comments