U.S. economy is moving as per Fed’s direction. A replay of last month’s Fed Chair Powell’s Jackson Hole speech is expected, with something for everyone but no commitments. The past six weeks have left investors with more questions than answers about the outlook for U.S. economy’s monetary policy and, by extension, financial markets.
“If things go well the first time, might as well try it again” might be Federal Reserve Chair Jerome Powell’s mantra as he prepares for this week’s policy meeting for U.S. economy, economists say.
Jerome Powell on rate hikes
Fed’s Jerome Powell’s speech at the central bank’s annual summit in Jackson Hole, Wyoming, last month seemed to satisfy both hawks and doves, with a combination of anti-inflation rhetoric and dovish details that revealed no concrete plans to raise interest rates again.
“The Jackson Hole speech was a genius stroke of messaging, because everyone heard what they wanted to from it,” Bill Adams, chief economist at Comerica Bank in Dallas, said in an interview.
Safe grounds
He predicted that Fed’s Powell, echoing that speech, will emphasize that it is resolved to get inflation back to its 2% target, and that the central bank is firm in its belief that interest rates will remain at high levels for an extended period.
Fed’s Powell cautious approach for U.S. economy has been echoed by other Fed officials.
Fed governor Christopher Waller told CNBC that “there is nothing that is saying we need to do anything imminent, anytime soon, so we can just sit there [and] and wait for the data.”
As per Boston Federal Reserve Bank President Susan Collins the central bank had earned the right to take its time with interest-rate decisions.
The Fed can also be patient because the trend in inflation is moving in the right direction for the U.S. economy, Yelena Shulyatyeva, senior U.S. economist for BNP Paribas, said in an interview.
Is inflation down trending?
Even if the August consumer-inflation report wasn’t as benign as the June and July reports, “we’re seeing the level of inflation has downshifted,” she said.
At the same time, the labor market has held firm, with some very incremental signs of softening. A year ago, many economists said lowering inflation without a big jump in unemployment was not possible.
Interest hike for U.S. economy by Feds?
Economists see the Fed holding high interest rate steady when their meeting ends Wednesday, after having raised the policy rate 25 basis points to a range of 5.25%-5.5% at its last meeting in July.
The central bank is likely to suggest that it may hike rates by 25 basis points at one of its two remaining meetings this year but make no commitment to do so.
Even if the Fed’s dot-plot forecast continues to show one more hike this year, the Fed “will not exercise the option to hike again unless progress on inflation and the labor market stalls out amid stronger growth,” said Krishna Guha, vice chair of Evercore ISI.
Experts on future rate hikes by Jerome Powell
Many economists, including Michael Hanson, senior global economist at JPMorgan, think the Fed is done with rate hiking altogether. Others think Fed’s Jerome Powell will do one more rate hikes before stopping, while only a few think there would be more interest rate hikes by Fed.
The terminal rate, the peak spot where the federal funds rate is expected to climb before being trimmed, was revised up to 5.6%, from the previous projection of 5.1% made in March.
That debate on the future of U,S. economy with regards to the rate hike by Fed’s Powell will continue until the following Fed meeting, scheduled for Oct. 31-Nov. 1.
