In today’s market review we are going to focus on Fed Chair Jerome Powell speech at Jackson Hole, just 9 minutes in length but enough to move the markets down significantly. For the Fed’s monetary policies to have any effect, markets must transmit them via the financial conditions to the actual economy. And the Fed needs to make sure this happens. And today was an effort by Powell to get this job done.
The speech was one of the strongest ever by the Fed chief, reflecting the onerous burden borne by the central bank in curbing inflation retreating ever so slowly from four-decade highs.
First Powell said inflation needed to be controlled. That was their main mandate.
Next he signalled there will be more rate hikes in the months ahead, taking the cash rate well above the neutral rate – meaning that they intend to deliberately slow the economy.
And he acknowledged this will hurt households and businesses.
And acknowledge that the current labour market was out of wack.
So, this message cut directly across the ranks of those saying the FED will pivot – arguing the FED has really been signalling that it would soon “pause” the rate hikes or “pivot” to rate cuts, even though the Fed had raised its policy rates four times this year, including twice by 75 basis points, the biggest rate hikes in years.
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