Federal Reserve Chair Jerome Powell has delivered a significant address at the Kansas City Fed’s annual symposium, where he emphasized the need to balance the economy to reduce inflation while avoiding a drastic slowdown. Powell stated that the Federal Reserve would proceed cautiously in any further decisions regarding interest rates, signaling a lack of urgency to raise rates at the upcoming September policy meeting. He highlighted recent signs suggesting the economy might not be slowing as projected, which could potentially jeopardize progress in curbing inflation and necessitate further monetary policy tightening.
The stock market reacted with fluctuations after Powell’s speech, eventually closing on a positive note. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all experienced gains. Meanwhile, the yield on the 10-year Treasury note rose slightly. Powell’s remarks reflected his awareness of the delicate balance between restraining the economy and addressing inflation concerns without undermining economic growth.
While the Federal Reserve raised the benchmark federal-funds rate last month, Powell’s speech indicated a cautious approach to potential further rate hikes. Some officials express concerns about the economic impact of continued rate increases, while others worry about the consequences of inflation not declining as expected. Powell acknowledged both concerns in his address, suggesting a possible strategy of holding rates steady as inflation subsides.
Powell’s nuanced speech was seen as an indication that he may be leaning towards a strategy of maintaining rates at current levels to address inflation’s decline. This could be a shift from previous signals of rate hikes. Nonetheless, Powell also stressed the importance of not abandoning the possibility of rate hikes entirely, given the recent growth trajectory of the economy.
Stronger economic activity has led to higher yields on long-term Treasury bonds, resulting in increased costs for various types of loans. However, the U.S. consumer remains resilient, and inflation-adjusted wage gains are being realized for the first time in years. Powell highlighted the need for sustained efforts to bring inflation down to the target level.
In conclusion, Powell’s speech at the symposium emphasized the Federal Reserve’s cautious approach to interest rate decisions, balancing the need to address inflation concerns while supporting economic growth.
