Senior Economist at UOB Group Alvin Liew reviews Chief Powell’s speech at the Jackson Hole Symposium on Friday.
Key Takeaways
“The key takeaway from FOMC Chair Powell’s succinct speech at Jackson Hole Symposium last Fri (26 Aug) is that inflation is still the focus and the Fed will press on in its painful inflation fight with more rate hikes as ‘Our [the Fed’s] responsibility to deliver price stability is unconditional’.”
“Powell’s comments were widely interpreted as hawkish. He stated the Fed’s resolute commitment to ‘price stability’ even if it takes time (i.e. prolonged policy tightening) and forceful measures (i.e. larger than usual rate hikes), at the expense of a long period of sub-par growth outcome and ‘some pain’ in the short term for households and businesses. And while Powell reiterated a recent statement that ‘At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases’, it was unmistakable that Powell’s immediate message was that policy rates are going to continue higher into the restrictive realm and could stay there for some time.”
“FOMC Outlook – No Change To Our 50bps Rate Hike Expectations For Sep FOMC For Now, But Aug Jobs & Aug CPI Data Key To Sep Outlook: Powell’s latest speech reaffirmed the broad market view that the Fed is still on a tightening path and it does not change our view for the Fed Funds Target Rate (FFTR) to be hiked by 50 bps in the Sep 2022 FOMC, followed by another 50 bps rate hike in Nov FOMC before ending the year with a 25bps hike in Dec, implying a cumulative 350bps of increases in 2022, bringing the FFTR higher to the range of 3.50-3.75% by end of 2022, a range largely viewed as well above the neutral stance (which is further confirmed in Powell’s speech as 2.25-2.50%, the Fed’s long run projection of FFTR). Market’s attention will now fall on data, specifically the US Aug Employment (2 Sep) and Aug CPI inflation (13 Sep) reports from the Bureau of Labor Statistics (BLS) which may shape Fed expectations before Sep’s FOMC decision day.”
