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Federal Reserve Chair Jerome Powell’s Stance on Interest Rate Hikes

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Economists who attended the U.S. central bank’s summer retreat in Jackson Hole, Wyo., agree that Federal Reserve Chair Jerome Powell has set a high bar for additional interest-rate hikes. While some found his speech to be hawkish, others believe that the Fed is likely done with raising rates in the near future.

Michael Feroli, chief U.S. economist for JPMorgan Chase, noted that Powell emphasized the importance of proceeding carefully and maintaining a balance between tightening too much or too little. Feroli expressed confidence that the Federal Open Market Committee (FOMC) will hold off on rate hikes for the next few meetings, with the caveat that unexpected inflation or a lack of softening in the labor market could change this forecast.

Ian Shepherdson, chief economist at Pantheon, characterized Powell’s speech as fundamentally optimistic yet cautious. He believes that behind the caveats, the Fed Chair’s overall tone suggests a more dovish stance going forward.

Boston Fed President Susan Collins echoed the sentiment of patience during an interview at the Jackson Hole summit. She emphasized the need for the Fed to take its time and make informed decisions.

Furthermore, regional Fed officials have hinted at the possibility of further action while acknowledging that inflation is moving in the right direction and the recent surge in yields could help cool down the economy, according to Krishna Guha, vice chairman of Evercore ISI.

Traders Anticipate Rate Hike in November

Traders in derivative markets are expecting a rate hike in November, although the odds are just slightly above 50%. The Monday following the Jackson Hole symposium has historically been a busy day across various asset classes.

Treasury Yields Holding Steady

The 10-year Treasury yield (BX:TMUBMUSD10Y) finished last week just above 4.2%. Market participants are closely monitoring the yield as it provides insight into market sentiment.

Employment Report to Test the Fed

This coming Friday, the government will release the August employment report, which will serve as the first test for the cautious and patient Federal Reserve. Economists surveyed by the Wall Street Journal anticipate an addition of 165,000 jobs in the U.S. economy for the month. If this projection holds true, it would mark the weakest job growth since December 2020.

Powell Stresses Importance of Labor Market

In his speech on Friday, Federal Reserve Chair Jerome Powell emphasized the significance of the labor market. Powell indicated that evidence of a softening labor market could prompt a monetary policy response from the Fed. Some economists at Deutsche Bank believe that if the employment data outperforms expectations, it could create discomfort for the Fed and increase expectations for further tightening.

Global Central Bankers at Jackson Hole

Aside from Powell, several other prominent global central bankers spoke at the Jackson Hole symposium. These included European Central Bank President Christine Lagarde, Bank of Japan Governor Kazuo Ueda, and Bank of England Deputy Governor Ben Broadbent. Overall, the officials seemed to exercise caution to avoid surprising the markets. However, Bundesbank President Joachim Nagel may have deviated from this approach slightly, stating in a television interview that it was too early for the European Central Bank (ECB) to consider pausing rate hikes.

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