US Markets
Friday, December 1st, 2023 4:59 pm EDT
Key Points
- Powell Pushes Back on Aggressive Rate Cuts: Federal Reserve Chairman Jerome Powell expressed caution and pushed back against market expectations for aggressive interest rate cuts, stating that it is too early to declare victory over inflation. He emphasized the Federal Open Market Committee’s commitment to keeping a restrictive policy until there is confidence that inflation is solidly heading back to the 2% target.
- Policy Still Restrictive, but Risks Balanced: Powell acknowledged that current policy is “well into restrictive territory,” but he cautioned against premature conclusions about achieving a sufficiently restrictive stance. He noted that the balance of risks between doing too much or too little on inflation is close to being balanced. This stance led to market interpretations that the Fed might be inching toward a dovish position.
- Market Reactions and Expectations: Following Powell’s remarks, financial markets responded positively, with major averages on Wall Street moving higher and Treasury yields experiencing a significant decline. Powell’s comments gave credence to the idea that the Fed might be done hiking rates, contributing to the rally in the stock market. Market pricing suggested expectations that the Fed is done hiking, and there could be rate cuts starting as soon as March 2024, with futures pointing to cuts totaling 1.25 percentage points by the end of the year. However, Powell and fellow officials have not provided any indication of considering rate cuts, emphasizing a data-dependent approach for future decisions. Powell characterized the labor market as “very strong,” but noted a reduced pace of job creation contributing to aligning supply and demand.
Federal Reserve Chairman Jerome Powell emphasized caution regarding interest rate cuts, challenging market expectations for aggressive cuts. Powell stated that it is premature to declare victory over inflation and mentioned the Federal Open Market Committee’s commitment to maintaining a restrictive policy until inflation convincingly returns to 2%. While Powell acknowledged that policy is well into restrictive territory, he cautioned against premature conclusions and speculation on when policy might ease.
The central bank leader indicated a balanced view of risks associated with inflation, stating that the balance between doing too much or too little is close. Powell’s remarks led to positive market reactions, with major averages on Wall Street moving higher, and Treasury yields experiencing a notable decline.
Despite market expectations of a dovish stance from the Fed, Powell’s comments suggested a measured approach, emphasizing the need for careful consideration of economic data. The recent string of rate hikes, initiated in March 2022, has impacted economic activity, and Powell hinted at a cautious approach as the Federal Reserve evaluates the risks of under- and over-tightening.
While Powell recognized that inflation remains above the central bank’s target, he noted that recent lower inflation readings are welcome. He emphasized the importance of continued progress in reducing inflation and expressed the belief that careful monitoring of data would guide future decisions on monetary policy.
The Federal Reserve has enacted 11 interest rate hikes in response to the highest inflation levels since the early 1980s. Powell highlighted that the Fed’s policy rate is now in restrictive territory, influencing economic activity and inflation. Market pricing on Friday indicated expectations that the Fed has concluded its hiking cycle and may start cutting rates as early as March 2024. However, Powell and other officials have not provided any indication of considering rate cuts, with decisions dependent on incoming data and their implications for economic activity and inflation.
Powell characterized the labor market as “very strong” but acknowledged a reduced pace of job creation contributing to aligning supply and demand. The Federal Reserve’s next meeting is scheduled for December 12-13, and Powell emphasized the central bank’s commitment to making decisions meeting by meeting based on the totality of incoming data.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/01/fed-chair-powell-calls-talk-of-cutting-rates-premature-and-says-more-hikes-could-happen.html
