Jerome Powell at Jackson Hall on August 23, 2024.
David a. Graghan CNBC
On Friday, Federal Reserve Chairman Jerome Powell gave a lukewarm signal to the potential reductions of interest rates because he pointed to a high level of uncertainty that makes the task difficult for monetary policy makers.
In his long -awaited speech at the annual Conclave at the Federal Reserve Bank of Jackson Hall, Wyoming, the central bank leader in mandatory notes, he pointed to “comprehensive changes” in tax, trade and immigration policies. The result is that “the risk balance appears to be transformed” between the double goals in the Federal Reserve for full employment and stable prices.
While he pointed out that the labor market is still in good condition and that the economy has shown “flexibility”, the negative risks are increasing. At the same time, he said that definitions cause risk that inflation will rise again – a stagnation scenario that the Federal Reserve must avoid.
Powell said that the standard interest rate of the Federal Reserve is a full percentage point below as it was when Powell delivered the keyword a year ago, the unemployment rate is still low, and the conditions allow us to “go ahead as we think about our policy changes.”
“However, with policy in restrictions, basic expectations and the variable risk balance may require modifying our position on politics,” he added.
This was the closest to him during a letter of support for a reduction rate that Wall Street believes widely that it is coming when the Federal Open Market Committee meets from September 16 to 17.
However, the notes were sufficient Send high stocks and Treasury revenue. the Dow Jon’s industrial average He showed a gain for more than 600 points after the general release of Powell’s speech while sensitive to politics Treasury bonds for two years 0.08 degrees Celsius witnessed a decrease to about 3.71 %.
In addition to the market expectations, President Donald Trump called for aggressive discounts from the Federal Reserve Bank in the exciting public attacks on Powell and his colleagues.
The Federal Reserve has retained the standard borrowing rate in a range of 4.25 % -4.5 % since December. Policy makers have continued to cite the uncertain impact that the definitions will achieve as inflation as a cause of caution and believe that the current economic conditions and the restriction policy position allow time to make more decisions.
The importance of Federal Reserve Independence
Although the White House’s requirements are not tackled specifically to reduce rates, Powell noted the importance of federal reserve independence.
“FOMC will make these decisions, based on their evaluation of data only and their effects on economic expectations and risk balance. We will never deviate from this approach,” he said.
The speech comes amid continuous negotiations between the White House and its global trading partners, and it is often put in flow and without clarity around the place where it will end. Modern indicators show that consumer prices are gradually paid to the top, but wholesale costs rise more quickly.
From the Trump administration’s point of view, definitions will not cause permanent inflation, and thus discounts in price rates. Powell’s position in the speech was that a set of results is possible, with a “reasonable basic state” that the effects of customs tariffs will be “short-lived-a one-time transformation at the price level” is likely that it is not a reason for retention rates. However, he said nothing certain at this stage.
“It will continue at a time when it takes time to increase the customs tariff to work through supply chains and distribution networks,” said Powell. “Moreover, customs tariff rates continue to develop, which may prolong the modification process.”
In addition to summarizing the current circumstances and possible results, the speech touched on the Federal Reserve Bank review for a period of five years of its political framework. The review resulted in many outstanding changes from when the central bank last task in 2020.
At that time, in the midst of the Covid’s pandemic, the Federal Reserve turned into a “flexible medium inflation” system that will actually allow inflation to the highest goal of the Federal Reserve by 2 % after a long period of maintaining this level. The result is that policymakers can be patient with a slightly higher enlargement if this means securing the recovery of the labor market more comprehensive.
However, shortly after the adoption of the strategy, inflation began to climb, eventually reached its 40 -year highest level, while policymakers greatly rejected the rise as “my transition” and they did not need to rise in the rate. Powell pointed to the harmful effects of inflation and lessons learned.
“As it turned out, the idea of deliberate and moderate inflation has proven unrealistic. There was nothing intended or moderate about inflation that arrived a few months after our announcement of our changes in 2020 in the consensus statement, as it publicly recognized in 2021,” Powell said. “The past five years have been a painful reminder of the hardship imposed by high inflation, especially on those who are less able to meet the high costs of necessities.”
Also during the review, the Federal Reserve confirmed again its commitment with the aim of inflation by 2 %. There were critics on both sides of the case, with some suggesting that the rate is very high and could lead to the weakest dollar, while others see the need for the central bank to be flexible.
“We believe our commitment to this goal is a major factor that helps to maintain long -term inflation expectations,” Powell said.
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