NEW YORK (Reuters) – The U.S. economy will need tight monetary policy “for some time” before inflation is under control, a fact that means slower growth, a weaker job market and “some pain” for households and businesses, Federal Reserve Chair Jerome Powell said on Friday in remarks warning there is no quick cure for fast rising prices.
“Reducing inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said in prepared remarks for a speech to the Jackson Hole central banking conference in Wyoming.
STORY: TEXT
MARKET REACTION:
STOCKS: S&P 500 extended a slight loss. It was down 52.87 points, or 1.26%, to 4,146.25 BONDS: U.S. Treasury 10-year yield rose and the price was last down 14/32 to yield 3.0743%, up from 3.024% late on Thursday.FOREX: The dollar index cut a loss and was off 0.323%
COMMENTS:
ANTOINE BOUVET, SENIOR RATES STRATEGIST, ING, LONDON
“It was hawkish, as expected. Powell’s message is clear, the Fed is far from done in its fight against inflation. He refrained from explicit references to financial conditions which was the main risk to financial markets today, but he implicitly endorsed other FOMC members’ comment that the Fed will be in no hurry to cut (rates) next year.
“Also, the text is peppered with Volcker references. All in, this should be enough for the weakness in front-end bonds to be maintained but nothing earth-shattering. Market reaction is justifiable sanguine.”
RICH STEINBERG, CHIEF MARKET STRATEGIST, THE COLONY GROUP, BOCA RATON, FLORIDA
“I don’t think there are any great surprises. I think he did what he wanted to accomplish, which is make the markets know the Fed is serious: ‘Were going to keep fighting good fight,’ and this is what the mandate of the Fed is. What we have essentially done is we’ve extended the conversation of seeing what the data looks like in the coming weeks to see if we get 50 or 75 (basis points of hiking in September.) I’m still in the camp that even though things are slowing, and you got some relief from the PCE today, the Fed has much more risk of being too dovish too early than being too aggressive.”
MICHAEL PEARCE, SENIOR US ECONOMIST, CAPITAL ECONOMICS, NEW YORK
“Fed Chair Jerome Powell’s keynote speech at Jackson Hole added to the tide of recent Fed speakers pushing back against market expectations that the Fed is close to pivoting toward rate cuts. Nevertheless, as inflation (including core) falls faster than officials expect over the next 12 months, we still expect the Fed to be lowering interest rates again in H2 2023.”
(Compiled by the Global Finance & Markets Breaking News team)
