Rate Projection Shift: Powell's Address Sparks Odds Swing

Police & Regulations
Martin Walker
Aug 26, 2023 at 04:05 pm

The prevailing expectation within the market is that a rate increase will take place before the year draws to a close.

The prospects for yet another adjustment in the Federal Reserve's policy rate gained substantial traction on Friday, subsequent to the discourse delivered by Fed Chair Jerome Powell at the Jackson Hole Symposium.

Within his address, Powell underscored the unwavering commitment of the Federal Reserve to drive inflation down to the 2% mark, even in light of certain economists' contentions that attaining such an objective might present challenges.

Powell stated, "Our inflation target remains steadfastly fixed at two percent." He appended that attaining this goal would necessitate a "phase typified by subpar economic expansion."

As of now, the Federal Reserve finds itself without the desired outcomes, given that the economy's cooling may not be unfolding as initially anticipated, he elaborated.

In the preceding week, noted economist Paul Krugman authored an op-ed for the New York Times, positing that the Federal Reserve could potentially steer towards a 3% inflation target, contending that the established 2% figure is prone to "perhaps constituting unsound economic practice."

In the aftermath of the address, the probabilities of a rate hike during the forthcoming September gathering of the Federal Reserve surged to 19%, as per data derived from the CME FedWatch tool. Simultaneously, the likelihood of an additional increase within this year ascended to 52.1%—marking a zenith witnessed over a span of two months.

Anticipated reductions in rates, which are widely believed to stimulate heightened investments in cryptocurrencies and stocks, are not anticipated prior to June 2024.

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