Fed Chair Powell Makes Clear That Monetary Pressure Isn’t Over

Before getting into any of the detail of  Federal Reserve Chair Jerome Powell’s remarks today at the annual Jackson Hole economic conference in Wyoming, start with the conclusion because it gives a succinct view of what is likely:

“As is often the case, we are navigating by the stars under cloudy skies. In such circumstances, risk-management considerations are critical. At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks. Based on this assessment, we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data. Restoring price stability is essential to achieving both sides of our dual mandate. We will need price stability to achieve a sustained period of strong labor market conditions that benefit all. We will keep at it until the job is done.”

That summary offers three major points:

1. Getting price changes back to a 2.0% rate is mandatory in the Fed’s eyes. That means not only prices but average nominal wages. These two interplay with each other.
2. The Fed isn’t going to make decisions based on a month or two or three of data. They will continue to follow what is happening. But don’t expect any significant short-term changes.
3. The Fed also is not going to dust their hands and say everything is done. The process will continue.

“Was he hawkish? Yes,” said Ryan Detrick, chief market strategist at Carson Group with Carson Group, an advisory firm with a claimed $21 million in assets under Management, in emailed remarks. “But given the jump in yields lately, he wasn’t as hawkish as some had feared. Remember, last year he took out the bazooka and was way more hawkish than anyone expected, which saw heavy selling into October. This time he hit it more down the middle, with no major changes in future hikes a welcome sign.” 

“To use a medical analogy, the inflation infection is getting more under control for now, but that could easily change,” said Marty Green, principal at mortgage law firm Polunsky Beitel Green, in a prepared statement. “The Fed intends to keep the medicine of higher rates on the table and has no plans to reduce the dosage any time soon. In fact, it may increase the dosage before reducing it.”

Or, as Powell said in his opening, “Although inflation has moved down from its peak — a welcome development — it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”

In other words, don’t plan on an early rate relaxation that could unbury many from impending refinancing pain.