July’s inflation decrease is not enough
FED will rely on September data before making any decision
Restoring price stability will take some time
Federal Reserve 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.
“Restoring price stability will likely require maintaining a restrictive policy stance for some time, the historical record cautions strongly against prematurely loosening policy”
He said restoring inflation to the 2% target is the central bank’s focus, even though consumers and businesses will feel economic pain: higher interest rates, slower growth, and softer labor market conditions.
Critics have slammed the Fed for failing to anticipate the inflationary surge, which the Fed initially viewed as transitory. It remains elevated: Inflation according to the Fed’s preferred measure rose 6.3% for the 12-month period ending July, according to a government report released earlier on Friday, while the core measure minus food and energy rose 4.6%. Yields on the U.S. government 2-year note dropped to the lows of the day following the report.
“Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook.
Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance”
Powell said the labor market is “clearly out of balance” with demand for workers “substantially” exceeding supply.
Investors reacted to the speech by extending the rise in shorter-date Treasury yields. The 2-year note pushed as high as 3.44% while the 2- to 10-year yield curve resumed its flattening. Equities were slightly lower.
Source: Bloomberg