“Restoring price stability will likely require continued tightening monetary policy for some time,” Fed Chair Jerome Powell said at the Jackson Hole Fed conference on Friday.
The Fed’s “overriding goal” is to return to the two percent inflation target. Going too slow would only increase long-term costs, Powell said. He tried to dampen market speculation of a rate cut next year. Historical experience would argue against easing monetary policy too early.
“Exceptionally large rate hike”
However, Powell did not yet give clear signals for the next meeting. “Our decision at the September meeting will depend on the aggregate of incoming data and the evolving outlook,” the central banker said. However, another “extraordinarily large” rate hike could become necessary. Markets are speculating that the Fed could raise interest rates by 0.50 or 0.75 percentage points.
The US Federal Reserve raised its key interest rate by 0.75 percentage points to between 2.25 and 2.50 percent at the most recent meeting in July. It was the fourth increase in the key interest rate since the beginning of the corona pandemic – and the second in a row by 0.75 percentage points. The reason is the very high inflation. The annual rate was 8.5 percent in July. The Fed is targeting a rate of 2 percent.
US stock markets fell
The environment for the central bank is difficult. The high inflation argues for further rate hikes. At the same time, the economy has recently cooled off noticeably and slipped into a so-called technical recession. US gross domestic product had shrunk for two quarters in a row. At the same time, the labor market is proving to be very robust. Powell has therefore again emphasized the data dependency of the Fed’s decisions.
US stock markets fell after Powell’s statements. The euro came under pressure again after gains and fell below par with the US dollar. US bond market yields fell a bit.
Source: Nachrichten
