I really like Fed Chair Jerome Powell. He is plain. He is clear. He is straightforward. He is the opposite of Alan Greenspan, who took pride in obscuring his meaning.
Here is a video and the actual transcript of what Mr. Powell said today.
I posted long excerpts of the speech earlier today. Here’s the bottom line.
“Given our progress in tightening policy, the timing of that [December] moderation [of the speed at which the Fed raises the fed funds rate] is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level. It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”
Holding policy at a restrictive level for SOME TIME. Powell mentioned earlier in his speech that there has been little impact on inflation to date even though the Fed has been raising rates since the beginning of 2022. So SOME TIME means several months at least, probably many months.
@MarkR wrote in a different thread that this was BS. The Fed will cave and slash rates as soon as recession hits as they have before. And maybe their gradual approach will prevent a recession after all.
This is clearly the market’s consensus.
The market is listening to the plain, clear voice of the Fed and simply discounting it.
I believe Powell.
Time will tell.
Perhaps MarkR & the market believe politics will enter the fray to put pressure upon Powell to lighten up.
I know, the taboo subject of politics. But sometimes economic policy & politics & stock market returns become entangled.
But individual’s beliefs & ego are important also.
I believe Powell has an eye upon how history will view his chairmanship. Methinks he will come down as Volcker like in his actions.
As you said:”Time will tell.”
Doves, who include Yellen, liberal members of the Federal Reserve and the Biden administration, think they can avoid a recession for a year or two — maybe until after the 2024 election.
“I think that what Powell wants is to get the recession over with and bring the economy back quickly, and Brainard and Yellen are more inclined to kick it down the road.”
“Essentially, I believe the Republicans would like a crisis leading into the election and Democrats would like to kick the can down the road.
The market agrees with this take. Based on the CME Fed Funds rate futures, the rate will remain high until Dec-2023 at which point it will gradually start coming down. That’s 12 months.
My take is that the market feels that way because the probability of recession in 2023 has dropped somewhat. If the probability of recession in early/mid-2023 goes up, then the probability of earlier rate drops will also go up.
Manufacturing is a major deflationary global force.
The Chinese are no longer exporting that global deflationary force.
The issue is will the US build out our manufacturing base to export a deflationary force globally?
Given less than two years, yes we will be by the end of 2024.
The two articles below seem to argue rate hikes will continue.