By Senad Karaahmetovic.
On Friday, following the long-awaited address by Fed Chair Jerome Powell at the Jackson Hole conference, the stock market was the focal point of investor attention.
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Powell said that the U.S. economy might feel “some pain” if the Federal Reserve keeps taking strong steps to fight inflation that has been going on for decades.In his statement, Powell stated that the central bank will “use our instruments aggressively” to reduce inflation.
While higher interest rates, slower economic growth, and weaker labour market conditions will reduce inflation, they will also cause considerable discomfort for consumers and companies. These are the undesirable expenses associated with controlling inflation. However, a failure to restore price stability would result in much more suffering, “added Powell.
As stated by Powell, controlling inflation is a higher priority for the Fed than encouraging economic growth or worrying about a recession.
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Several Wall Street analysts viewed Powell’s Friday address as follows:
Michael Gapen of Bank of America stated, “We anticipated the major message from Jackson Hole to be that conditions demand “higher for longer” policy rates. In this aspect, Jackson Hole’s message fulfilled our expectations… We anticipate a 50bp rate rise in September, but robust employment in August might tilt the scales in favour of a 75bp hike. We continue to feel a hard landing is more likely than a soft landing, and our prognosis for a mild recession remains unchanged.
The major message from Mr. Powell’s speech, according to Credit Suisse’s Fahad Tariq, is that a Fed pivot (i.e., a move from a hawkish to dovish attitude) looks unlikely in the near future… The price of gold would probably go down if nominal interest rates went up and inflation went down, even if inflation was still well above the Fed’s 2% goal.
Ellen Zentner of Morgan Stanley remarked, “The Chair did not break any new ground, but the speech reaffirmed the Fed’s determination to stay the course on inflation. We maintain our current base case of a 50 basis point rate rise in September, but we now anticipate extremely considerable upside risks based on the August CPI figure that will be reported on September 13. ”
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Ryan Wang of HSBC says that the FOMC is likely to decide to raise rates by 50 basis points in September, 50 basis points in November, 25 basis points in December, and 25 basis points in February 2023, bringing the federal funds target range to 3.75 to 4.00%. We anticipate seeing indications of a weakening labour market over the balance of this year. This might entail a decline in the number of job openings, an increase in the unemployment rate, and a slowdown in pay growth, causing the FOMC to cease hiking interest rates at the beginning of next year. “
