Breaking news: Powell speaks to Congress, "Long way to go"

Fed Chair Sees ‘Long Way to Go’ on Inflation Fight

Jerome H. Powell, the chair of the Federal Reserve, is set to tell House lawmakers that most central bank officials expect rates to rise further.
Jeanna Smialek

By Jeanna Smialek, The New York Times, June 21, 2023, Updated 10:31 a.m. ET

Jerome H. Powell, the chair of the Federal Reserve, told House lawmakers that the United States remains a “long way” away from low and stable inflation even 15 months into the central bank’s campaign to cool the economy and wrestle down rapid price increases.

Mr. Powell is testifying before the House Financial Services Committee. He told lawmakers that the labor market remains very tight and that inflation — while it has come down notably from its peak last summer — is still too fast. In light of that, the Fed could raise interest rates even higher than their current level of just above 5 percent…

“Given how far we’ve come, it may make sense to move rates higher, but to do so at a more moderate pace,” Mr. Powell said in response to a lawmaker’s question, explaining that it was like moving from a highway to more local roads. “As you get closer to your destination, as you try to find that destination, you slow down even further.”… [end quote]

The futures market is very sure that the Fed will raise the fed funds rate in July by 0.25% to 5.25 - 5.50%. A small fraction think the Fed will raise a second time later in 2023. By December 2023, about 1/3 of market participants think the Fed will start to cut. By January 2024, about 2/3 of participants think the Fed will start to cut. By December 2024, almost no market participants think that the fed funds rate will be 5% or above. The market consensus (median) at the end of 2024 is 3.50 - 4.00%.

The Fed’s “dot plot” from their Summary of Economic Projections shows a higher median for 2024 but declining to this level in 2025.

The same report shows PCE and core PCE inflation declining to their target of 2% in 2025.

The stock market has a pattern of ignoring Powell’s clear signaling and rising until he speaks clearly again and smacks them down.

For long-term investors, what really matters is the economy.

Forget the Fed, and Focus on the Economy

What matters for long-run returns is getting the direction right, and the Fed’s fine-tuning misses the point

James Mackintosh hedcutBy James Mackintosh, The Wall Street Journal, June 21, 2023

Rather than preparing for still-higher interest rates, markets are well along in pricing an economy with lower but fairly sticky inflation, higher-for-longer rates and continued growth. Stocks are up, Treasury yields are broadly stable at what used to count as a high level, and risk premiums on junk bonds are falling fast. These all point in the same direction, and it’s a bullish one.

Many of the same economic concerns that earlier this year led economists to predict recession are still in place… [end quote]

Conclusion: There is a lot of risk built into the stock market now. It’s very expensive. Many investors appear sure that the economy has turned around in a positive direction. But the Fed is determined to hold rates high for at least the next year. They NEVER intend to resume the zero fed funds rate that pushed so many assets to bubble levels.



That is good news, for sure. And it could help stop forming future bubbles. I’m looking at you, AI industry… :smiley:


I think most prudent people realize now that holding the near-zero rate for so long was a big mistake. It was absurd, literally absurd, that $10+T of debt instruments across the world had negative yields.


There needs to be follow through but the stock gods must have heard this today.

BTC and Eth are not bubbles. They become old fashioned mania. The difference being the level of pure insanity is much worse. That is what you get with digital scarcity.

Oddly enough AI has nothing scarce about it. And on that note is worthless.

Powell is a very powerful speaker, he rocks markets.

Tesla down 5.46%.

The Captain

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To some people, it is quite comforting to hear the fed jawboning so heavily. They think that they may be using jawboning instead of rate increases to accomplish their goals. Heck, they may even be right!


If there is pseudo-science, is there pseudo-investing?

The Captain

Tesla was “downgraded” by “analysts”.


To a degree I think they are right. The rate increases have slowed down some industries a little and jawboning helps, but there is another pretty large whack waiting in the wings and that’s the resumption of student debt payments, That will affect tens of millions, and pull billions out of the consumer economy leading to lowered demand and general belt tightening.

They say it takes a full year for Fed moves to ripple through the economy. It’s been (roughly) a year, gas prices have come down, and there’s soon to be a macro event that will continue the slow drift downwards.

The worst thing the Fed could do in the face of this is listen to the hawks and resume a program of increasing rates further. I would bet they will, but that will precipitate a sharp correction at the end of the year or early next year, just as elections are getting underway.

Then what?


Yes, that is a “whack” indeed. But an increase in unemployment of 1% is a whack that is about twice as large. So the fed tightrope remains intact … use the non-fed (at least not primarily) “whacks” (failed western regional banks, student loan payment resumption, etc) and use the fed-induced “whacks” (rate rises, QT, etc), yet try to keep a balance such that the fed-induced whacks don’t cause additional secondary whacks. It’s a really tough job.

I agree with you that the fed will tread very lightly going forward. That’s not to say that they may not raise again, but if they do, it will be minimal (1/4 at most), and the language associated with it will be softened. My gut tells me that the fed really wanted to get a recession out of the way in 2023 rather than in 2024 an election year. That’s what all those 3/4 point increases were all about. But so far it hasn’t quite worked, they’ve gotten close, but still no recession. Maybe Q3/Q4 will do the trick for them? But if it doesn’t, then they are in a quandary because they don’t want the recession in 2024.

U.S. existing-home prices posted their biggest year-over-year decline in more than 11 years last month as rising interest rates continued [to weigh on the housing market].

The national median existing-home price fell 3.1% in May from a year earlier to $396,100, the largest drop since December 2011, the National Association of Realtors said Thursday.

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By this time next year factory orders will be rebounding. There is too much demand in the economy for that not to happen. This is just a respite in how much demand drives the economy.

No bottom is forever.

The FED is in a holding pattern.

While some projects are being shelved by corporate America other parts of a factory buildout have been ongoing.

There is a relative side to any rate level. Meaning if we are to be in a higher rate environment that does not preclude higher GDP growth when the corporate planners come back to making decisions in a new normal. It just takes time to settle things down and get a view of what would generally make the corporation more money.