Chairman Powell’s much-anticipated speech was short and to the point this morning. His effort to keep inflation expectations under control was on full display as he forcefully aligned himself with Paul Volcker, declaring that the Federal Reserve would not declare a premature victory in the fight to bring inflation down to 2%.
In terms of good news, he gave no indication of thinking the Federal Funds rate needed to go higher than the previous FOMC projections (3.75% by year-end).
The Chairman dashed the hopes of those who expect rate cuts to commence next year by saying that the only way to bring inflation down was to raise rates high enough to force sub-par growth, which would mean some pain for people and businesses. He made it clear that even negative payroll numbers were not going to push the Federal Reserve to reverse course unless inflation was clearly declining.
He expects this to be a long fight.
Our Thinking.
- The Federal Reserve is on track to raise the overnight rate to approximately 3.75% by year-end.
- Inflation numbers are the most important data points in the coming months
- Position in securities issued by companies that can manage through a long period of weak or negative economic growth
