stockmarketwalk FED Chairman Jerome Powell confirmed in his speech that the fight against the inflation will
keep at it until the job is done
even as the economy slows.
Furthermore, he warned that the hiking interest rate will go together with
some pain to households and businesses
The economic data published so far doesn’t show a clear picture about the economy. However, according to Powell, the economy remains strong. The labor market is overheated, the demand on labor market still exceeds the labor supply. But the inflationary pressures remain significant.
According to a chief economist at Moody’s Analytics, every 1 percentage grow in the unemployment rate means a loss of approximately 1.6 million jobs. Even if the Fed raised the target inflation rate to 3% from 2%, the economy would still slow enough to lose about 1.7 million jobs in the U.S.. This would result an unemployment rate of 4.6% compared to today’s value of 3.5%.
New York Federal Reserve Bank President John Williams on Tuesday said he still expect the interest rate grow to continue. This will preferably remain at this level until the inflation gets moderated. Most likely it will be necessary to raise the interest rate above 3.5% and it is unlikely to be cut at all next year because of the central bank’s fight against the high inflation.
The population will be adversely affected by the deteriorating labor market and economic conditions. Restoring the price stability is now the priority. The Fed president did not provide any new forward-looking guidelines specifically where he would like to see the interest rate.
Powell and Williams form the Fed’s Policy Brain Trust along with Vice Chair Lael Brainard form the Fed’s policy brain trust. They are trying to reduce the inflation, which is way more than the central bank’s 2% target and is near its highest level in the last 40 years.
Money market traders already price a 72.5% chance of a 75-basis-point interest rate hike at the Fed’s September meeting. They expect the Fed’s key rate to close the year at around 3.7%.
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Source: CNN, Economictimes
