“Inflation still too high”
Fed flirting with another rate hike
08/25/2023 5:29 p.m
Will the US Federal Reserve raise interest rates again? This question drives the market. In Jackson Hole, Fed Chairman Powell allows himself to be cautiously examined. The tenor: interest rates could well continue to rise. This contradicts the expectations of the market.
In the fight against inflation, Fed Chair Jerome Powell believes the US Federal Reserve may have to raise interest rates further. At the same time, in his speech at the central bank forum in Jackson Hole, which the financial markets were eagerly awaiting, he signaled that the monetary authorities would proceed cautiously. Despite the series of rate hikes, inflation is still too high. “We stand ready to raise interest rates further if necessary and intend to keep monetary policy at a restrictive level,” Powell said.
The US Federal Reserve wants to curb inflation and make it dependent on the incoming data whether or not it will raise interest rates further in September. Before Powell’s speech, the money market had put the chances of interest rates rising this year at 50 percent. Expectations were that the Fed would keep its feet still in September and, if necessary, add interest in November or December – with an interest rate hike of 0.25 percent. The speech did not bring more clarity in the eyes of investors. However, interest rate expectations fell slightly.
The Fed has raised interest rates from near zero to a range of 5.25 to 5.50 percent since early 2022 in a bid to rein in inflation and cool down the overheated labor market. However, the unemployment rate is at a historically low level of 3.5 percent. In addition, the economy has so far coped with the series of interest rate hikes unexpectedly well.
Inflation is on the decline, even though consumer prices rose by 3.2 percent in July, slightly above June’s figure of 3.0 percent. However, experts had expected a somewhat stronger increase to 3.3 percent.