Federal Reserve Chair Jerome Powell to Address Inflation Concerns and Monetary Policy in Key Speech

Federal Reserve Chair Jerome Powell to Address Economic Club of New York

Federal Reserve Chair Jerome Powell is scheduled to deliver a significant policy address on Thursday. The central bank aims to convince the markets that it is committed to tackling inflation but may require less force. Powell will speak at the Economic Club of New York, addressing the current state of the US economy.

Conflicting Signals from Inflation Numbers and Treasury Yields

While inflation numbers have been showing improvement, Treasury yields have been surging. This disparity sends mixed messages about the future direction of monetary policy. Although the market largely expects the Fed to maintain interest rates, investors will look to Powell’s speech for confirmation and clarification on the Fed’s perspective regarding current conditions and long-term trends.

Powell’s Expected Message

Economists anticipate that Powell’s speech will revolve around three key points. Firstly, the Fed needed to raise rates quickly, which it has done. Secondly, there is ongoing debate about finding the peak level of rates. Lastly, the Fed needs to determine how long rates should stay high to bring inflation back to its 2% target.

The “Higher for Longer” Mantra

Recently, the phrase “higher for longer” has gained popularity, specifically among Fed officials. Several policymakers, including Philadelphia Fed President Patrick Harker, have advocated for delaying rate hikes to evaluate incoming data. Powell is expected to align with this sentiment, emphasizing the importance of not becoming complacent in the fight against inflation.

Data-Dependent Focus and Rising Yields

Powell is likely to emphasize a data-dependent approach for the Fed, following a period of more aggressive rate increases. However, investors will also be interested in his views on rising yields, as the 10-year Treasury approaches its highest point in 16 years. Powell is expected to maintain that the recent surge in yields has tightened financial conditions, leading to no immediate need for a policy response in November.

Anticipated Future Rate Cuts

According to Krishna Guha, head of global policy and central bank strategy at Evercore ISI, if the Fed stays on hold now, it will serve as a “down payment” on future rate cuts in 2024. This strategy may be implemented as both inflation and economic growth weaken.