President Powell’s ‘rate hike’ message

Fed Chairman Powell said, “75 basis points increase is not something that the FOMC is actively considering. If we see what we expect to see, a 50 basis point hike will be on the table in the next 2 meetings.”

Highlights from the speech of US Federal Reserve (Fed) Chairman Jerome Powell are as follows:

Inflation is too high. It is essential to bring inflation to a foot and to keep the labor market strong. The labor market is extremely tight. The underlying momentum in the economy remains strong. Labor demand is very strong. The labor supply is depressed. Inflation is well above target. Wages show the fastest increase in recent years. Troubles persist in supply chains. Supply disruptions are bigger and more permanent than anticipated. The Ukraine war is likely to strain overseas economies and spill over into the United States.


We are very cautious about the risks posed by inflation to price stability and maximum employment. We think that the continuation of the increase in interest rates would be appropriate. Our monetary policy is adapting to circumstances and we will continue to do so. Contracting the balance sheet will also play an important role. A 50 basis point rate hike is on the table for the next two meetings. Our main policy remains to bring inflation back to 2 percent. We will refrain from making the increment, which is already quite vague, more ambiguous. The economy could handle tighter monetary policy. America is strong enough to handle tighter monetary policy. Inflation creates an upside shock and more is on the way. We are ready to make policy changes as needed. We think job creation will slow down. We think that supply and demand will come into balance in the labor market. As labor supply and demand stabilize, wage inflation will slow down. We have a good chance of a soft landing. We are not close to a contraction in the economy. It will be very difficult to bring inflation down while maintaining the strength of the labor market, and it will not be easy to achieve a soft landing. A 75 basis point rate hike is not something to be evaluated. A 75 basis point rate hike is not something that is actively discussed. It is considered that 50 basis point increases are on the table in the next 2 meetings.


We don’t just want to see evidence of flattening inflation, we want progress in that direction. It is difficult to give forward direction, we leave space to evaluate the data. We need to see inflation really come under control. If we see what we expect to see, a 50 basis point rate hike will be on the table in the next 2 meetings. No bright red light on where the neutral interest rate is. If a higher interest rate is required, we do not hesitate to do so. We do not see strong evidence that inflationary psychology is changing. Short-term inflation expectations are quite high.

We know we need to act quickly to raise the policy rate to more normal levels, and we will do so if we need to continue. We cannot allow wage increases to spiral into a spiral. We have a job to do on demand. Situations in Ukraine and China are likely to increase headline inflation. Both issues are likely to worsen supply chain problems. Supply chain problems put the central bank in a difficult position.

We need to bring labor supply and demand into a better balance. We would like to see progress on wages and inflation. We understand the troubles and pain caused by high inflation. Our task is to ensure that high inflation does not ossify. Bringing inflation down will not please us, we need price stability. We have a good chance of bringing inflation down without causing a significant increase in unemployment. We are not satisfied with the rate hike, but we need to ensure price stability. The economy is doing pretty well, we expect productivity to be strong this year. Nothing in the economy points to a recession.


We have a good chance of avoiding a recession. There has to be some room to reduce the oversupply of the economy without putting people out of work, no one said it would be easy. It is possible that the Fed may need to raise the policy rate to more restrictive levels, and if we have to, we will not hesitate, we are absolutely ready to do so. Price stability is absolutely essential for the labor market. Achieving price stability will be quite challenging. If we think it is appropriate, we will increase the interest rates to more restrictive levels. When we reach the neutral level, the decision will be on the table. If we think it is appropriate for the interest to go above the neutral level, we will not hesitate to do so.


June 1 is not a magic date that we chose to start shrinking the balance sheet, we just chose that day. It is unclear what the effects of shrinking the balance sheet will be. People estimate that shrinking the balance sheet will have the same effect as a 25 basis point rate hike during the year. I don’t think the Fed has a credibility problem. We will work with the American people, it’s important for them to know that we know how painful high inflation is. Monetary policy works through expectations, markets think our forward guidance is credible.


As interest rates increase, demand will slow down. As interest rates rise, businesses will invest slightly less and consumers will spend slightly less. Bringing inflation to 2 percent might be a bit of a pain, but not dealing with high inflation would be even more painful. Now is the time to act in accordance with the data and fight inflation with the tools at our disposal. It is best for all to return to price stability.


Source: bigpara- GÜNDEM by

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