Tag: Jerome Powell

The Federal Reserve will slow down the pace of interest-rate hikes, Chair Jerome Powell said on Wednesday, giving markets hope that the aggressive cycle of rate increases will ease up.

“The time for moderating the pace of rate increases may come as soon as the December meeting,” Powell said in remarks delivered at the Brookings Institution.

Stock markets surged in afternoon trading, with the S&P 500 gaining 3.1% to close at 4,080. The Dow rose 2.2%, to 34,590, while the tech-heavy Nasdaq soared 4.4%.

Inflation fight has “long way to go”

Powell noted that, while the central bank may ultimately raise rates to a higher level than it initially planned, it would do so in smaller increments.

“It is likely that restoring price stability will require holding (interest rates) at a restrictive level for some time,” Powell said. “History cautions strongly against prematurely loosening policy.”

Still, he sounded a note of caution.

“We don’t want to overtighten, so that’s why we are slowing down, and we are going to find our way to where the right level is,” Powell told the audience.

Powell acknowledged there has been some good news on the inflation front, with the cost of goods such as cars, furniture and appliances in retreat. He also said that rents and other housing costs — which make up about a third of the consumer price index — were likely to decline next year.

But the cost of services, which includes dining out, traveling and health care, are still rising at a fast clip and will likely be much harder to rein in, he said.

“Despite some promising developments, we have a long way to go in restoring price stability,” Powell said.

Powell emphasized that the labor market continues to be too hot for the Fed’s tastes. While job openings fell in October, there are still about 1.7 open jobs for every unemployed worker who is looking for work, signaling “a real imbalance between supply and demand” for workers.

He added that services costs are mostly pushed higher by rising wages, which have been growing at the fastest pace in four decades but are still below the rate of inflation.

The lack of workers reflects a jump in early retirements, the death of several hundred thousand working-age people from COVID-19, and a sharp decline in immigration and slower population growth, he said.

Scrutiny of wage increases

Many progressives have accused Powell of prioritizing price drops over full employment. Despite the Fed’s scrutiny of wages, there is no evidence that current inflation bout is caused by workers’ pay increases. Powell delivered a rebuke, saying that to have an economy that grows over the long term, inflation must come down.

“If you’re constantly fighting off inflation, and it goes on for five, 10 years, you can’t have full employment,” he said.

Last month’s inflation report showed that prices rose 7.7% in October from a year earlier, straining many families’ budgets but down from a 9.1% peak in June.

Supersized rate hikes

The Fed has lifted its key rate six times this year, to a range of 3.75% to 4%, the highest in 15 years. Those increases have sharply boosted mortgage rates, causing home sales to plunge, and it has raised costs for most other consumer and business loans.

Fed officials forecast in September that they would ultimately push their short-term rate somewhere between 4.5% to 4.75% by next year. Powell suggested Wednesday that rates will likely go higher than that. Many economists forecast the Fed’s key rate will rise to at least 5% to 5.25%.

At the Fed’s last meeting in November, it hiked rates by a hefty three-quarters of a point for the fourth straight time. Powell signaled at the time that its next increase would likely be only a half-point, still a significant step up. Typically the central bank moves interest rates in quarter-point increments.

CBS News’ Irina Ivanova contributed reporting.

Exhilaration is sweeping through Wall Street Thursday morning after a government report showed that U.S. inflation eased by even more than economists expected last month.  

 The S&P 500 jumped 156 points, or 4%, to 3,905 as of 10:31 a.m. Eastern. The Dow rose 872 points, or 3%, to 33, 385 and the tech-heavy Nasdaq surged 5.6%. Treasury yields fell dramatically as bond markets relaxed.

Even bitcoin rose, clawing back some of its steep plunge from prior days caused by the crypto industry’s latest crisis of confidence. A slowdown in inflation could mean the Federal Reserve won’t have to be so aggressive about raising interest rates. Such hikes have been the main reason for Wall Street’s troubles this year and are threatening a recession.

The yield on the 10-year Treasury, which helps set rates for mortgages and other loans, fell sharply to 3.93% from 4.10% late Wednesday.

All the moves stemmed from the consumer price index (CPI) showing that inflation slowed to 7.7% last month, from 8.2% in September. It’s the fourth straight month of moderation since inflation hit a peak of 9.1% in June, and it was an even better reading than the 8% that economists were expecting.

Core inflation slows

Inflation also slowed more than expected after ignoring the effects of food and energy prices. That’s the measure that the Fed pays closer attention to. So did inflation between September and October.

“The month-of-month rate of inflation is much more informative,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments. “On that measure, inflation is still high, but not scary high.”

Slower inflation could keep the Fed off the most aggressive path in raising interest rates. It’s already raised its key lending rate to a range of 3.75% to 4%, up from close to zero in March.

Hikes to continue

While the data was an encouraging sign, analysts also cautioned against assuming that the battle against inflation is over.

“The Fed is still on track to increase the fed funds rate by 0.50% on December 14,” Jeffrey Roach, chief economist for LPL Financial, said in an email. “However, in the near term, investors should respond favorably to these encouraging moves in consumer prices.”

Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office, also warns investors not to get carried away by the seemingly game-changing report. 

“The Fed was adamant that it won’t hit the brakes on rate hikes until inflation slows, and while the market’s rally indicates investors may see light at the end of the tunnel, it will get one more reading before its decision next month,” he said. “Remember that even as we see a slowdown, prices remain elevated and have a long way to go before normalizing.” 

Another potentially market-shaking report will also hit Wall Street Friday, when the latest reading arrives on how much inflation U.S. households see coming in future years. Fed Chair Jerome Powell has said he’s paying particularly close attention to such expectations.

One of the reasons the Fed has been so aggressive about hiking rates is because it wants avoid a debilitating cycle where expectations for high inflation push people to change their behaviors in ways that lead to even higher inflation.

Stocks have swung sharply this week, with several factors pushing the market both up and down. On one hand, investors hope Tuesday’s elections may result in a Washington where control is split between Democrats and Republicans. That could prevent the kind of sweeping economic changes that make investors nervous, but the outlook for that is still uncertain as votes are still being counted.

FTX flameout

Huge losses in the crypto world, meanwhile, were threatening to spill over into other markets and at least dent confidence among investors. Bitcoin was sitting below $16,500 shortly before the inflation report, down from roughly $20,000 a week ago and nearly $69,000 a year ago. It quickly jumped $1,000 within a half hour before settling back around $17,400.

Much of this week’s furor for crypto has centered on one of the bigger trading exchanges, FTX, where the industry’s latest crisis of confidence caused customers to scramble to pull out their money. Sharp drops in crypto prices can trigger even steeper declines because of how much money many crypto investors have borrowed to make trades, which can amplify market moves.

Lenders are likely forcing those investors to put up more collateral, something called a margin call, and the process could take weeks to play out, according to strategists at JPMorgan. One challenge for the market is that the number of big, financially strong players that can bail out the weaker ones is shrinking, according to the strategists.