Fed Chair Powell calls talk of cutting rates ‘premature’ and says more hikes could happen

Federal
Reserve
Chairman

Jerome
Powell
on
Friday
pushed
back
on
market
expectations
for
aggressive
interest
rate
cuts
ahead,
calling
it
too
early
to
declare
victory
over
inflation.

Despite
a
string
of
positive
indicators
recently
regarding
prices,
the
central
bank
leader
said
the
Federal
Open
Market
Committee
plans
on
“keeping
policy
restrictive”
until
policymakers
are
convinced
that
inflation
is
heading
solidly
back
to
2%.

“It
would
be
premature
to
conclude
with
confidence
that
we
have
achieved
a
sufficiently
restrictive
stance,
or
to
speculate
on
when
policy
might
ease,”
Powell
said
in
prepared
remarks
for
an
audience
at

Spelman
College
in
Atlanta.
“We
are
prepared
to
tighten
policy
further
if
it
becomes
appropriate
to
do
so.”

However,
he
also
noted
that
policy
is
“well
into
restrictive
territory”
and
noted
that
balance
of
risks
between
doing
too
much
or
too
little
on
inflation
are
close
to
balanced
now.

Markets
moved
higher
following
Powell’s
remarks,
with
major
averages
positive
on
Wall
Street
and
Treasury
yields
sharply
lower.

“Markets
view
today’s
comments
as
inching
toward
the
dovish
camp,”
said
Jeffrey
Roach,
chief
economist
at
LPL
Financial.

Expectations
that

the
Fed
is
done
raising
rates
and
will
move
to
an
easing
posture
in
2024
have
helped
underpin
a
strong
Wall
Street
rally
that
has
sent
the
Dow
Jones
Industrial
Average
up
more
than
8%
over
the
past
month
to
a
new
2023
high.

Powell’s
remarks
gave
some
credence
to
the
idea
that
the
Fed
at
least
is
done
hiking
as
the
string
of
rate
hikes
since
March
2022
have
cut
into
economic
activity.

“Having
come
so
far
so
quickly,
the
FOMC
is
moving
forward
carefully,
as
the
risks
of
under-
and
over-tightening
are
becoming
more
balanced,”
he
said.

“As
the
demand-
and
supply-related
effects
of
the
pandemic
continue
to
unwind,
uncertainty
about
the
outlook
for
the
economy
is
unusually
elevated,”
he
added.
“Like
most
forecasters,
my
colleagues
and
I
anticipate
that
growth
in
spending
and
output
will
slow
over
the
next
year,
as
the
effects
of
the
pandemic
and
the
reopening
fade
and
as
restrictive
monetary
policy
weighs
on
aggregate
demand.”

A
Commerce
Department
report
Thursday
showed
that
personal
consumption
expenditures
prices,
the
Fed’s
preferred
inflation
gauge,
were
up
3%
from
a
year
ago,

but
3.5%
at
a
core
basis
that
excludes
volatile
food
and
energy
prices.
Recent
sharp
declines
in
energy
have
been
responsible
for
much
of
the
easing
in
inflation.

Powell
said
the
current
levels
are
still
“well
above”
the
central
bank’s
goal.
Noting
that
core
inflation
has
run
at
a
2.5%
annual
rate
over
the
past
six
months,
Powell
said,
“while
the
lower
inflation
readings
of
the
past
few
months
are
welcome,
that
progress
must
continue
if
we
are
to
reach
our
2
percent
objective.”

“Inflation
is
still
running
well
above
target,
but
it’s
moving
in
the
right
direction,”
he
said.
“So
we
think
the
right
thing
to
be
doing
now
is
to
be
moving
carefully,
thinking
carefully
about
about
how
things
are
going
on
letting
letting
the
data
tell
us
what
the
story
is.
The
data
will
tell
us
whether
we’ve
done
enough
or
whether
we
need
to
do
more.”

After
inflation
hit
its
highest
level
since
the
early
1980s,
the
Fed
enacted
a
series
of
11
interest
rate
hikes,
taking
its
policy
rate
to
the
highest
in
22
years
at
a
target
range
between
5.25%-5.5%.
The
FOMC
at
its
past
two
meetings
kept
rates
level,
and
multiple
officials
have
indicated
they
think
the
federal
funds
rate
is
probably
at
or
near
where
it
needs
to
be.

The
Fed’s
next
meeting
is
Dec.
12-13.

“The
strong
actions
we
have
taken
have
moved
our
policy
rate
well
into
restrictive
territory,
meaning
that
tight
monetary
policy
is
putting
downward
pressure
on
economic
activity
and
inflation,”
Powell
said.
“Monetary
policy
is
thought
to
affect
economic
conditions
with
a
lag,
and
the
full
effects
of
our
tightening
have
likely
not
yet
been
felt.”

Market
pricing
Friday
morning
indicated
that
the
Fed
indeed
is
done
hiking
and
could
start
cutting
as
soon
as
March
2024,

according
to
the
CME
Group.
Moreover,
futures
are
pointing
to
cuts
totaling
1.25
percentage
points
by
the
end
of
the
year,
the
equivalent
of
five
quarter
percentage
point
reductions.

However,
neither
Powell
nor
any
of
his
fellow
officials

have
provided
any
indication
that
they’re
thinking
about
cuts,
with
the
chair
adhering
to
data
dependence
for
future
decisions
rather
than
any
preset
course.

“We
are
making
decisions
meeting
by
meeting,
based
on
the
totality
of
the
incoming
data
and
their
implications
for
the
outlook
for
economic
activity
and
inflation,
as
well
as
the
balance
of
risks,”
Powell
said.

Addressing
the
economic
data,
Powell
characterized
the
labor
market
as
“very
strong,”
through
he
said
a
reduced
pace
of
job
creation
is
helping
bring
supply
and
demand
back
in
line.

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