Powell: “The final rate of interest rates will be higher than expected”

“The Fed needs to continue to tighten financial conditions further, and simply cannot afford to relinquish the aggressive stance to do so ,” Danske Bank concludes.

And with this assessment we close our special direct on the Fed. Thank you very much for choosing Bolsamanía to be informed and see you at the next meeting, which will be on December 14.

“The Fed prefers a short recession to years of stagflation,” Danske Bank experts say, referring to Powell’s comments about the risks of not reining in inflation now.

For Pantheon Macroeconomics, “the combination of a clearly moderate change in the language of the statement, followed by a much more aggressive press conference, is disconcerting “.

“The reaction of stocks and bonds has been negative, since the market expected more clarity on the possibility that they will reduce the pace of interest rate increases and far from that, Powell has hinted that they will remain higher for longer ” explained Carlos del Campo, a member of Diaphanum’s Investment department. 

For Pantheon Macroeconomics , the 75bp rate hikes are over, “unless the data between now and the December meeting, including two rounds of reports on inflation and the labor market, are unexpectedly dire. We don’t expect that, for what we think the markets will now gravitate to is a 50bp hike in Dec. We don’t rule out 25bps, if the data cooperates, but whatever happens in December, we doubt the Fed will hike again next year. enough for policy to be clearly restrictive, and intense downward pressure on inflation is now brewing .”

Alfredo Jiménez, Director of Studies at IEAF-FE, states that “the market continues to discount that interest rates will continue to rise in the coming months. The market consensus places interest rates at 4.5% in December and in the 5% in May . That is, a rise of 50 bps at the next meeting in December 2022 and two additional rises of 25 bps each in the first two meetings of 2023.” 

02 nov, 202220:36

Dow Jones: -1,25%; S&P 500: -2,16%; Nasdaq: -2,83%

West Texas Oil Future: +0.7% ($89.01)

10-year US bond: 4.101% (+0.05)

Euro/Dollar: -0.40% ($0.9834)

Bitcoin: -1% ($20.239)

” The inflation forecast is increasingly challenging ,” Powell acknowledges in his latest response to a journalist. He ends the press conference with the Nasdaq clearly negative (-1.6%).

“The window for a soft landing is smaller, but it is possible,” says Powell when asked about the possibility that there will be no recession in the US. Most analysts think that this is already impossible.

“We don’t have the feeling that inflation is going down,” Powell acknowledges.

“If we tighten too much (it’s not what we want), we have the tools to stimulate the economy if necessary,” Powell replies when asked about the pace of rate hikes, the most aggressive since the 1980s.

“We don’t think we have tightened monetary policy too much”

“Price stability has been fundamental to the economy for decades,” recalls Powell. Something that unfortunately has been lost during his tenure at the head of the Fed.

“Wages have an effect on inflation and vice versa. Now I don’t see an inflationary spiral in wages and we hope we don’t,” says Powell.

” It’s too early to think of a pause in rate hikes, ” adds Powell. The central banker tries to curb overly optimistic forecasts by the market.

” We want to make sure we don’t loosen our monetary policy too soon .” Powell says that they prefer to be tough now and control inflation, because then they would have tools to stimulate the economy. Because the other option, being soft and not controlling the inflationary spiral, would be much worse.

“Financial conditions have tightened quite a bit,” says Powell.

“The important thing is to see how high rates have to go and how long they can stay at restrictive levels,” Powell says. This is relevant to the market. Lots of volatility on Wall Street, now trading mixed, as Powell speaks.

“We haven’t made any decision on moderating rate hikes,” he replies when asked about a 50bp rate hike in December.

“We analyze the impact of rate hikes on the economy and financial conditions,” says the Fed chairman.