SUMMARY
- Federal Reserve Chairman Jerome Powell announces potential interest rate increases, driven by a strong labor market.
- Powell suggests alternating meetings for rate hikes might not be a consistent pattern, depending on incoming economic data.
- Economists predict rate hikes might trigger a mild recession, with Powell admitting to a possible economic downturn.
In a recent address, the indomitable Federal Reserve Chair, Jerome Powell, pulled no punches regarding inflation. Speaking in Sintra, Portugal, he heralded multiple impending interest rate hikes, perhaps at a rapid-fire rate, signaling a robust American labor market as the driving force.
Powell's assertive stance echoes the sentiments of his colleagues who, during a June meeting, alluded to additional increases, adding up to half a percentage point, before we bid 2023 goodbye. Making simple assumptions, we can infer the possibility of two more rate hikes. Powell, having suggested in the past the likelihood of alternating between meetings for rate hikes, hinted that this pattern might vary based on incoming data.
The Fed's rhythm had been a steady beat of hikes at every meeting since March 2022, with a series of consecutive three-quarter point surges before a pause in June. Powell, in his usual straightforward manner, didn't rule out back-to-back rate hikes.
Wall Street momentarily staggered as Powell's words echoed in the markets, with the Dow Jones Industrial Average dipping over 120 points. At the core of the Fed's ongoing deliberations is the conviction that the ten consecutive rate hikes haven't had ample time to permeate the economy. Therefore, they're unsure whether the policy has reached the "sufficiently restrictive" threshold needed to wrestle inflation down to the Fed's 2% target.
Renowned economists are predicting that these rate hikes may trigger at least a slight recession in the U.S. "There's a real possibility of a downturn," Powell confessed, though he clarified that it wasn't the most probable scenario, but nonetheless, a possibility.
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