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Fed’s Powell Urges Flexibility in Face of a Dynamic Economy

November 8, 2023 by Marco Santarelli

Fed’s Powell Urges Flexibility in Face of a Dynamic Economy

Fed’s Powell Urges Flexibility in Face of a Dynamic Economy

Federal Reserve Chair Jerome H. Powell, in a recent address at the Federal Reserve, emphasized the need for flexibility in economic forecasting. Powell, a central figure in the nation's monetary policy, spoke during a news conference held on Wednesday, November 1, 2023, and addressed critical issues facing the Federal Reserve.

Challenges and Calls for Flexibility

During the conference, Powell discussed the Federal Reserve's decision to maintain the key short-term interest rate for the second consecutive time. However, he also highlighted the central bank's openness to the possibility of further rate hikes if inflationary pressures intensify in the coming months.

Jerome Powell stressed the importance of flexibility in economic forecasting, encouraging the Federal Reserve's forecasters to “think outside” traditional economic models. He acknowledged that the post-pandemic economy has consistently defied expectations. Powell praised the Division of Research and Statistics, a key source of economic data and analysis that informs the Federal Reserve's interest rate decisions. Notably, the Division was celebrating its 100th anniversary at the conference.

Powell emphasized that while the division's forecasts demand “a high degree of intellectual rigor,” this rigor must be complemented by flexibility and agility. He pointed out that while economic models have historically been effective at explaining the workings of the economy over past decades, they often fall short in times of unpredictability.

“Our economy is flexible and dynamic, subject to unexpected shocks like a global financial crisis or a pandemic,” Powell stated. “In such times, forecasters must go beyond the limitations of traditional models.”

Interest Rates and Economic Resilience

Notably, Jerome Powell did not provide specific details about the economic outlook or potential changes in interest rates during his address. However, it's worth mentioning that the Federal Reserve recently decided to maintain interest rates within a range of 5.25 percent to 5.5 percent. This marked the first time in nearly two years that the Federal Reserve opted to keep rates unchanged at consecutive meetings.

The central bank had previously raised interest rates multiple times over the past year and a half, aiming to curb inflationary pressures. Despite these efforts, the economy has proven remarkably resilient, with inflation still exceeding the Federal Reserve's target of 2 percent.

In contrast, the labor market appears to be showing signs of cooling. The October jobs report, released last week, fell short of expectations. The report indicated that the U.S. economy added 150,000 jobs, while the unemployment rate rose to 3.9 percent.

According to experts, this complex economic landscape presents a unique set of challenges for the Federal Reserve as they navigate their monetary policy decisions.

In summary, Federal Reserve Chair Jerome H. Powell's call for flexibility in economic forecasting reflects the dynamic nature of the U.S. economy. As the central bank grapples with maintaining stability and controlling inflation, the ability to adapt to unforeseen circumstances remains a critical factor in their decision-making process.

Filed Under: Economy, Financing, Mortgage, Trending News Tagged With: Fed Chair, Fed Rate, Federal Reserve

Fed Chair Powell Expects More Interest Rate Hikes in 2023

June 22, 2023 by Marco Santarelli

Fed Chair Powell Expects More Interest Rate Hikes

Federal Reserve Chairman Jerome Powell recently reiterated that the fight against inflation is far from over and that more interest rate increases are likely in the near future. Speaking before the House Financial Services Committee, Powell indicated that the decision to hold off on rate hikes during the recent Federal Open Market Committee (FOMC) meeting was just a temporary pause and not a signal that the Fed is done raising rates.

Fed Chair Powell Expects More Interest Rate Hikes

Despite some moderation, inflation remains a concern, with pressures still running high. The Fed's focus on core inflation highlights the persistent upward pressure on prices. Powell's remarks underscored the importance of a gradual and cautious approach to policy adjustments, given the progress made and the need for a balanced economic landscape.

Inflation Concerns Persist

Powell acknowledged that while inflation has moderated somewhat since last year, it remains well above the Federal Reserve's target of 2%. He emphasized that inflation pressures continue to run high, and there is a long way to go before inflation can be brought down to the desired level. Despite recent cooling, inflationary pressures persist, and the central bank is committed to taking further action to address the issue.

Anticipated Rate Hikes

Following the recent FOMC meeting, officials signaled that they foresee an increase in interest rates totaling 0.5 percentage points by the end of 2023. This projection implies two additional rate hikes, assuming quarter-point increments. The current benchmark borrowing rate set by the Fed is in the range of 5% to 5.25%. Powell's remarks align with the consensus view among FOMC participants that further rate increases will be necessary in the coming months.

Assessing Core Inflation

When evaluating inflation, the Fed focuses on core inflation, which excludes food and energy prices. According to the central bank's preferred measure of personal consumption expenditures prices, core inflation was at a rate of 4.7% year-over-year through April. The core consumer price index for May stood at 5.3%. These figures demonstrate that core inflation remains elevated, emphasizing the need for continued vigilance and monetary policy adjustments.

Lagging Effects of Monetary Policy

Monetary policy measures, including rate hikes and the reduction of bond holdings on the Fed's balance sheet, often have delayed effects on the economy. As a result, the decision to abstain from raising rates during the most recent meeting was influenced by the need to observe the impact of previous tightening measures. Powell highlighted that the economy continues to feel the effects of monetary restraint, particularly in interest rate-sensitive sectors. The full consequences of this policy tightening will take time to materialize, especially with regard to inflation.

Adjusting Policy Pace

Powell acknowledged that the Fed has adjusted its approach to the policy after implementing aggressive rate hikes comparable to the early 1980s. Previously, the Fed had raised rates by 0.75 percentage points consecutively four times. However, Powell now believes that a more moderate pace is appropriate. He emphasized that given the progress made thus far, raising rates is still a viable option but should be done gradually and cautiously. The adjustment in policy pace reflects the evolving economic landscape and the need for a balanced approach.

Inflation Expectations and Economic Growth

Powell addressed the importance of well-anchored inflation expectations for predicting future price trends. He cited the University of Michigan consumer confidence survey, which showed a dip in inflation expectations for the next year to 3.3%, the lowest level since March 2021. While this indicates some positive developments, Powell cautioned that reducing inflation to the desired level would require slowing down economic growth below its trend rate. He also stressed that future rate decisions would be based on incoming data and evaluated on a meeting-by-meeting basis, rather than adhering to a predetermined course.

Regulatory Practices and Banking Turmoil

In his remarks, Powell briefly touched upon the banking turmoil experienced earlier in the year. He emphasized that the episode served as a reminder of the importance of appropriate supervisory and regulatory practices. The Fed is committed to ensuring the stability of the financial system and will continue to evaluate and adjust its regulatory framework as needed. Powell's acknowledgment of the banking turmoil highlights the Fed's dedication to maintaining a resilient financial sector and underscores the interconnectedness between monetary policy and financial stability.


Source:

  • https://www.cnbc.com/2023/06/21/powell-expects-more-fed-rate-hikes-ahead-as-inflation-fight-has-a-long-way-to-go.html

Filed Under: Economy, Financing, Mortgage, Trending News Tagged With: Fed Chair, Fed Rate, Fed Rate Hike, Federal Reserve, Interest Rate Hikes

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