“We navigate following the stars, but the sky is full of clouds”. In his speech at the central bankers' symposium in Jackson Hole, Federal Reserve Governor Jerome Powell chose this metaphor to describe the situation of uncertainty that is characterizing the US economy.
"Inflation remains too high and therefore we remain intent on raise rates again until inflation falls towards the 2% target,” Powell said flatly. "Monetary policy will be restrictive until inflation slows down substantially," he added, reassuring however "caution" in the next decisions that will be made "based on the data".
Powell: 'Ready to hike rates further if necessary'
“We are ready to raise rates further if needed, and we intend to keep the policy at a restrictive level until we are certain that inflation is moving sustainably towards our target”, said Powell clearly who, however, to avoid an excessively “aggressive” attitude such as the one held last year (which caused the markets to collapse ed.) said he was "optimistic" and reassured: the Fed will use all the "caution" request to decide "whether to tighten further or whether, instead, to keep the policy rate constant and wait for further data". Simply put, there could even be a new break in September, but there will be new increases until the end of the year.
Powell: 'The economy is not cooling enough'
According to Powell, inflation remains too high and the growth above the economic trend may require further increases. “To bring inflation back to 2% – he highlighted – a phase of growth below the trend of the economy and a period of slowdown in the conditions of the labor market will be necessary”. At the moment the unemployment rate is still around 3,6%. “The economy is not cooling down as expected and this could hinder further progress on the inflation front and make further hikes necessary”.
The number one of the Federal Reserve then explained: “It is difficult to say when the neutral level is reached – added Powell – but doing too little risks making inflation persistent with higher costs afterwards. Doing too much can on the other hand do unnecessary damage to the economy. At the next meetings we will look at the totality of the data and the evolution of risks and on this basis we will decide cautiously whether to raise rates again or pause while waiting for further information”.
The market reaction
Until a few hours ago, Feds Fans futures expected the US central bank to leave interest rates unchanged until the end of the year. Powell's words slowed the exchanges' enthusiasm. After the announcement of new increases, albeit with the addition "if necessary", Piazza Affari halved its gains and now rises by 0,3%. Just above parity all the other European stock exchanges which proceeded quickly this morning.
Wall Street instead, he preferred to wait and avoid reacting "gut-wise". For almost an hour, American stocks did not (almost move) only to turn negative: the Dow Jones dropped 0,2%, the S&P 500 0,4%, the Nasdaq 0,6%.
The dollar is also negative, standing at 0,92 euros and 0,79 pounds. The differential between German ten-year BTPs and Bunds decreased to 165,9 points, with the Italian annual yield increasing by 3,2 points to 4,19% and the German one by 3,1 points to 2,53%.
