Chair Powell recognised inflation is "substantially higher than 2%". It is 7%... Good spot.
Good morning,
Federal Reserve Chairman Powell went out of his way during question time to continually highlight that there is immense room for interest rates to go up quickly without any negative impact on the labor market or the economy.
Chairman Powell reasserted, as I am often telling people, that the maintenance of stock market levels is NOT the role of the Federal Reserve. Their role is supporting the economy and maintaining a strong labor market.
Chairman Powell said they will be looking at the Fed Funds Rate as the number one vehicle to adjust monetary policy and fight inflation.
When specifically asked if individual rate hikes could be as high as 50 points, he answered by saying there is a lot of room for significant increases in the Fed fund rates due to the historically tight labor market?
On inflation, the Fed continues to appear to lack an accurate understanding of the forces involved and where they are coming from. "Freedom of pricing" driving simultaneous increases in earnings and inflation is a discovery yet to be made at the Fed.
This means what we are facing is exactly as forecast last June that the Federal Reserve will be hiking rates increasingly aggressively. Yet, remain far behind the inflation curve. The risk becomes an intensifying pursuit of inflation later in the year. I believe inflation will remain stubbornly elevated.
Powell is still talking about supply chains becoming better functioning which will alleviate inflationary pressures. This is the exact same argument as existed when inflation was at 3%.
Conclusion: The takeaway for me is that the core issue and problem, that of inflation, will remain unbridled. Even with my forecast that the Fed Funds Rate will be 1.75% to 2.25% this year.
High stock valuations are going to be increasingly confronted with a deteriorating economic outlook and ever higher interest rates.
Hence my continued bearishness on equities.
US Inflation
Fed Funds Rate
Plenty of room for very big gains.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Recommended Content
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.