Higher Rates Are Coming Through 2023 According to Powell by wsjprintsubscription

Jerome Powell opened a new phase in his campaign to recover the economy from inflation, announcing that interest rates will rise more than projected, but these adjustments may be smaller increases.

The chairman of the Federal Reserve after the Fed raised rates by 75 basis points for the 4th consecutive time told reporters that “the data received since our last meeting suggests that the final level of interest rates will be higher than expected.” expected”.

Powell said it would be appropriate to slow the rate of increases “as soon as the next meeting or the next. No decision has been made,” he said, while stressing that “we still have some ways” before the rates were strict enough, adding that “It is very premature to think about pausing,” he said.

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Still more “continuous increases” are likely to be needed to bring rates to a level that is sufficient to return inflation to 2% over time, according to the Federal Open Market Committee, in new language added to its statement after a two day meeting. in Washington.

The Fed’s unanimous decision raised the benchmark federal funds rate target to a range of 3.75% to 4%, its highest level since 2008.

“Slower for longer,” declared JP Morgan Chase & Co chief US economist Michael Feroli in a note to clients. “The Fed opened the door to reduce the size of the next hike, but did so without improving financial conditions.”

Jerome Powell’s message was criticized by financial markets, citing that he mixed an aggressive tilt towards higher rates with a dovish nod to a possible short-term downward shift.

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Stocks initially rose and Treasury yields fell with the dollar in the statement, hinting that rate hikes were entering their final phase. Then, when Powell talked about a higher top rate and said the Fed had a “way forward” on tightening, yields and the dollar rose and stocks fell. The S&P 500 suffered its worst Fed decision-day loss since January 2021.

With inflation approaching a 40-year high, officials met days before the US midterm elections in which the dominant theme was price pressure.

The result of the Nov. 8 vote could cost President Joe Biden’s Democrats control of Congress, and some prominent lawmakers from his party have begun publicly urging the Federal Reserve to show restraint. Powell, for his part, has tried to keep the central bank out of the political fray.

Officials, as expected, said they will continue to reduce their holdings of Treasuries and mortgage-backed securities as planned, at a rate amounting to about $1.1 trillion a year.

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The higher rates go, the harder the Fed’s job becomes. Having been criticized for overlooking the stubbornness of rising inflation, officials know that monetary policy works with a lag and that the tighter it becomes , plus not only curbs inflation, but also economic growth and hiring.

Still, Powell stressed that they would not blink at his efforts to bring inflation back down to his 2% target.

“The historical record strongly cautions against premature relaxation of policy,” he said. “We will stay the course, until the job is done.”

The Fed’s forecasts in September implied a 50 basis point move in December, based on the median projection. Those projections showed rates reaching 4.4% this year and 4.6% next year, before cuts in 2024. Powell’s comments made it clear that the peak noted in that projection would be higher if it occurred in This meeting.