The speech of the Federal Reserve chairman Jerome Powell on the Jackson Hole symposium hit the labor market, the impact of rates on inflation and economic conditions. (Credit: Kansas City Fed)
Federal Reserve Chair Jerome Powell On Friday said that “balance between risks seems to be shifting” in the US economy, because policy makers of the central bank weigh the labor market conditions and inflation data prior to their next interest rate decision in mid -September.
Powell spoke at the annual Monetary Policy Conference organized by the Kansas City Fed in Jackson Hole, Wyoming, in what is expected to be his last address at the event as FED chairman. After a series of inflation prints that show consumer prices that are higher and further away from the goal of 2% of the FED, as well as a weaker job report in July will be with large downward revisions of employment in May and June.
The Federal Reserve Chairman said that the downward risks for the labor market seem to rise, while economic growth delayed in the first half of the year due to slower consumer expenditures, and added that rates have begun to stimulate the risk of higher inflation, although the long-term influencing is still well.
“Although the labor market seems to be in balance, it is a strange kind of balance that is the result of a clear delay in both the range of and the offer for employees,” said Powell. “This unusual situation suggests that the risks to employment rise, and if those risks occur, they can quickly do this in the form of sharply higher redundancies and rising unemployment.”
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The chairman of the Federal Reserve Jerome Powell said that the “balance between risks seems to be shifting” in his Jackson Hole speech. (Chip Somodevilla / Getty Images / Getty images)
“The Effects of rates Consumer prices are now clearly visible. We expect those effects to accumulate in the coming months, with high uncertainty about both timing and amounts. The question that matters for the monetary policy is whether these price increases will probably increase the risk of a continuous inflation problem, “said Powell.
“A reasonable basic case is that the effects will be relatively short -lived, a one -off shift in the price level. Of course, once does not mean once in one go. It will continue to take the time before the tariff increases make their way through supply chains and distribution networks.
“However, it is also possible that the upward pressure on prices can stimulate front tariffs a more sustainable Inflation DynamicAnd that is a risk to be assessed and managed. ”
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Powell said that the risk of a spiral of a wage price is powered by employees who asked and received higher wages to compensate for the impact of higher prices on household budgets, given the mitigation labor market conditions. He added that inflation expectations in the longer term “have remained well anchored and consistent with our long-term inflation objective of 2%.”
“Of course we cannot grant the stability of inflation expectations for granted. Come on, we will not let a one -off increase in the price level be a constant inflation problem,” Powell added.
“So compiling the documents, what are the implications for monetary policy? In the short term, risks for inflation are tilted and risks for the disadvantage of the work – a challenging situation. When our goals are in tension, our framework evokes to balance both sides of our double mandate,” he said.
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Powell noted that after the Federal Open Market Committee (FOMC) has reduced the rate of the Benchmark Federal Funds last year by 100 basic points, the Fed has room to maneuver, because the rates returns to a neutral level, where the labor market still shows signs of sustainability.
“Our policy percentage is now 100 basic points closer to neutral than a year ago, and the stability of the unemployment rate And other labor market measures enable us to continue carefully as we consider changes to our policy posture, “he explained.” Nevertheless, with policy in a restrictive area, the Baseline for views and the shifting risk balance can justify that our policy position will be adjusted. “
“The monetary policy is not on a predetermined course. FOMC members will only make these decisions based on their assessment of the data and its implications for the economic prospects and the risk balance. We will never deviate from that approach,” Powell said.
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FED -President Jerome Powell speaks with Bank of Canada Gouverneur Tiff Macklem and Bank of England Gouverneur Andrew Bailey during the Jackson Hole Summit 2024. (Natalie Behring / Bloomberg via Getty Images / Getty images)
The stock market gathered in response to Powell’s speech, with large indexes by more than 1% as the expectations for an interest rate reduction increased in September.
“The weakness of the labor market seems to have weighed the risk of inflation for the FED, and the first reaction of the markets speaks for itself,” says Ellen Zentner, Chief Economic Strategist for Morgan Stanley Wealth Management. “Longer term, the debate on how far and quickly the FED will lower, has just begun. Chairman Powell confirmed the inflation objective of 2% and with rates that still worked through the economy, the Fed avoided the victory over that part of its mandate.”
Seema Shah, head of global strategist at Principal Asset Management, said that although Powell’s speech “clearly leaned Dovish, his comments indicate that a 25-based point-snit is valid, but a cut of 50 Basic Point is not.”
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“Certainly, although the case has been strengthened for the relaxation, there is little economic justification for a 50-basic reduction on emergency. If the FED opts for such a movement, Markets can interpret it as a sign of political influence instead of data-driven decision-making. This could stimulate the inflory delay, the floating delay, the floating, the floating expectations, the floating of long-term” Shah explained.
Futures -Markten showed the chance of one 25-Basis-Point cut According to the CME Fedwatch tool, higher was yielded after Powell’s speech, rising from 75% to 89.2% after Powell’s speech. The chance that the rates on the current reach of 4.25% to 4.5% fell from 25% yesterday to 10.8% after the speech, while the probability of a cut of 50 base remained at zero.
