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The Federal Reserve is far from finished -by Ecork

FOMC Talking Points

  • Interest rates can remain high for some time reflecting economic conditions
  • The tight labor market does not support the idea of ​​the current recession
  • Future interest rates will depend on the data

Over the past few days, Federal Reserve officials have suggested that the current restrictive monetary policy cycle by the Federal Open Market Committee is far from over. This week, Mary C. Daly, 13The tenth The chairwoman of the San Francisco Fed, who is currently not a voting member, articulated her thoughts and commented that a lot of work needs to be done before the Fed can get inflation under control.

In the August 2 issue of “Fort Knox,” and one week after the Fed raised rates for the second time in a row by 75 basis points, raising the fed funds rate range to 2.25%-2.50%, the San Fed chief said Francisco No one should see this violent movement as an indication that the FOMC is about to end.

During the interview with host John Fort, she reminded the audience of the Federal Reserve’s dual mandate of maximum employment and price stability.

Target: 2% inflation

On growth and inflation, she acknowledged a notable drop in gas prices (which could comfort consumers), a slowdown in the housing market, and a downward shift in the broader economy, but added that inflationary pressures remain high. The recent interest rate increases were a good start to reduce this burden, but the 9.1% level of the June CPI is not considered price stability. Nearly 2% is what the Fed is fully proclaiming and united in, and she said she doesn’t understand why markets are already expecting a rate cut next year. Raising interest rates aggressively as the Fed does to bring them back down later at the same speed would not make sense, would not be good for the economy and would not be good for consumers because they need the Fed to pave the way for effective planning.

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The next batch of inflation is due to be released next Wednesday, with current expectations for the CPI to fall to 8.7% from the previous reading of 9.1%.

The job market is still tight

Regarding the labor market, it considers it too narrow because the overall supply is still short. Small businesses are struggling because the lower wage sector is now mobile amid more opportunities within industries and higher wages. She believes that job vacancies can be dropped without affecting the unemployment rate as seen in the technology sector – companies are reporting a slowdown in the pace of hiring. Therefore, there is a need to balance demand with supply. Soft landing is necessary. Unemployment claims are increasing slightly (which may indicate a higher unemployment rate in the future) but there is nothing to worry about at the moment.

The Nonfarm Payrolls report released earlier on Friday showed a huge headline reading of +528K vs. +250K expected, with the unemployment rate dropping to 3.5% vs. 3.6% prior reading. Therefore, even with the Federal Reserve raising interest rates by 225 basis points over the past five months, the jobs market continues to show gains through non-farm payrolls. To read more, check out this article from Diego Coleman discusses the Nonfarm Payrolls report in more detail.

In conclusion, the San Francisco Fed President appears to be reinforcing the message about the possibility of further rate hikes but also making sure that investors understand that interest rates can remain high for some time; It would be premature to think otherwise as she has clearly expressed her determination to push inflation close to 2% despite investors trying to pull back amid fears of an economic slowdown. Finally, I reminded the public that the pace of such price hikes will be determined by upcoming data and before the upcoming FOMC meeting, policy makers and investors will be able to absorb more inflation and employment numbers.

Mary Daly: The Fed is far from finishedMary Daly: The Fed is far from finished

— By Cecilia Sanchez Corona, DailyFX.com

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