Fed officials are in Jackson Hole, Wyoming, last week for an annual conference that’s attended by central bankers from around the world. There, Chair Jerome Powell signaled the US central bank is likely to keep raising interest rates and leave them elevated for a while to stamp out inflation, and he pushed back against any idea that the Fed would soon reverse course. The world’s top central bankers delivered a stern and unified message on the need to curb inflation, declaring at Jackson Hole that it is broad-based, here to stay, and will require their forceful action.
“Restoring price stability will likely require maintaining a restrictive policy stance for some time,” Powell told the audience at the Fed’s annual retreat. “The historical record cautions strongly against prematurely loosening policy.” Federal Reserve Chair Jerome Powell issued a fresh warning to investors doubting his resolve to fight inflation: interest rates are heading higher and will stay there “for some time.”
Other Feds members affirmed the same vision as Jerome Powell. “I want to see our policy get to something that’s marginally restrictive,” Atlanta Fed President Raphael Bostic told Bloomberg Television before Powell spoke, adding that he thinks rates should go up by 100 to 125 basis points above current levels. “In terms of staying there, I think we should stay there for a long time,” he said. “I want to see our policy get to something that’s marginally restrictive,” Atlanta Fed President Raphael Bostic told Bloomberg Television before Powell spoke, adding that he thinks rates should go up by 100 to 125 basis points above current levels. “In terms of staying there, I think we should stay there for a long time,” he said.
Fed officials also voiced explicit dissatisfaction with bets in financial markets that rates will peak below 4% next year and then be cut in the later part of 2023.
The S&P 500 plunged more than 3% after the Federal Reserve chair said additional jumbo-sized hikes may be warranted and rates will remain elevated until inflation eases. Bringing down prices “is likely to require a sustained period of below-trend growth” and an increase in unemployment, Powell said at the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming
“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.” Federal Reserve Chair Jerome Powell. A hugely important employment report will validate the case for 50 or 75 basis points,” said Alan Ruskin, chief international strategist at Deutsche Bank AG. “If we see strength in jobs, it means the Fed can go 75 and raise rates quickly without risking growth.”
JPMorgan Chase & Co. strategists, on the other hand, said earlier this week they expect the last of the Fed’s big rate hikes in September, allowing stocks to extend their rally into the end of the year.
“The European Central Bank must show determination in tackling record inflation to avoid being forced into “unnecessarily brutal” interest-rate moves later on, according to Governing Council member Francois Villeroy de Galhau. Sustained hikes will be necessary at least until borrowing costs reach a level at which they neither stimulate nor constrain the economy, the French central bank head said in a speech at the Federal Reserve’s Jackson Hole symposium. That may happen by year-end after “another significant step in September.” “We can be gradual, but we should not be slow and delay normalization until higher inflation expectations force us into aggressive interest-rate hikes,” Villeroy said Saturday.
European Central Bank Governing Council member Klaas Knot said he supports an interest-rate increase of as much as 75 basis points at next month’s meeting. “The inflation problem in Europe at the moment is so big that I think our job is to raise interest rates every six weeks until the inflation picture stabilizes around 2%,” Knot, an ECB hawk, said in an interview with Dutch broadcaster NOS.
Swiss National Bank President Thomas Jordan warned that stubborn price gains may be here to stay. “There are signs that inflation is increasingly spreading to goods and services that are not directly affected by the pandemic or the war in Ukraine,” he said. “In fact, it appears that in the current environment, higher prices are being passed on more quickly -- and are also being more readily accepted -- than was the case until just recently.”
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