Last week we heard from several past Fed Governors as well as current ones. All thought that the Fed had done enough and now it is time to take a “pause”. However, when Chairman Jerome Powell spoke on Friday morning, his words conveyed the same narrative we have heard consistently over the past two years. While acknowledging that inflation has cooled, he reiterated that the Fed still needs to continue to do more. The words he chose to use imply that the Fed is willing to do whatever is necessary to get to their target 2% inflation rate.
Chair Powell says that the US central bank is prepared to raise rates further if need be, and they intend to keep borrowing costs high until inflation gets to their target of 2%. Remember, the Fed has increased rates 11 times since it began this tightening campaign and has pushed the benchmark rate to 5.25%-5.5%.
“Although inflation has moved down from its peak – a welcome development – it remains too high,” he said at the Federal Reserve’s annual conference at Jackson Hole, Wyoming this past week. He cautioned that the process “still has a long way to go, even with the more favorable recent readings.”
Initially, his remarks about continuing to raise rates jolted a positive stock market open, later in the day, the remarks seemed to have had a more calming effect on the markets, and they finished higher for the day.
Tom Garretson, Sr. Portfolio Strategist with RBC Wealth Management, said “Powell, as has been the case for some time, didn’t offer the markets anything revelatory on Friday – which was likely the goal. The market reaction looks consistent with the idea that the Fed is likely done raising rates over the near term.”