The Fed Will Cope With a Fall and 5 Other Things We Learned from Powell’s Press

But there were many moving parts to the Federation message.

Here are six things we learned from the central bank’s economic forecast and Fed Chairman Jerome Powell’s press conference on Wednesday:

The Fed tolerates recession.

According to the Fed’s forecast, the unemployment rate will rise to 4.4% next year. This is 0.7 percent higher than the current unemployment rate.

The unemployment rate has never been higher than 0.5% without the economy going into recession. So the FOMC’s forecast is a clear admission that a recession is likely unless something unusual happens,” said Roberto Perelli, head of global policy at Piper Sandler.

“No one knows whether this process will lead to failure or how significant that failure will be,” Powell said. He did not give an estimate of the likelihood of a recession.

Read: The Fed’s forecast shows a decline in the future

Powell convinced him to increase the speed of the front loading

There was a debate about whether the Fed should go slow and move higher rates or go bigger now, and Powell convinced the front-loading camp, said Julia Coronado, founder of Macropolicy Views.

The Fed’s front-loaded strategy is to increase at a faster pace. Once they reach their destination, Fed officials will pause and let all monetary policy play out.

“At this rate, they won’t be far from their destination,” Coronado said. She said she was marginally inclined to gripe a bit.

Fed officials do not predict the benchmark rate will rise above 5%

Even if the Fed raises its “final rate” to 4.6 percent in 2023, none of the Fed officials have predicted rates will be above 5 percent.

Six federal officials came very close. They predict the Fed will raise its benchmark rate to 4.75%-5%.

Another camp of six officials sees rates rising to 4.5%-4.75% next year, while another six see rates in the 4.25%-4.5% range.

Powell isn’t worried about housing market weakness.

Some economists worry that the weak housing market will drag the US economy into recession.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, spoke of the “shocking meltdown” in the housing market.

Asked about his sentiments, Powell said the recent drop in home prices from a “red-hot” market is a “good thing” because it brings prices closer to rent and other fundamentals.

Over time, the economy needs to better match housing supply and demand, so prices can rise at a reasonable rate and people can buy homes again, he said.

“So in the housing market we probably need to make a correction to get back to a better balance,” he concluded.

No tough talk on inflation.

Powell has been delivering his tough messages on inflation, and the results showed during his press conference.

“My main message hasn’t changed since Jackson Hole,” he said. In that speech at the end of August, Powell promised to keep raising inflation “until the job is done.”

“We have to get inflation behind us,” Powell said at a press conference on Wednesday. I wish there was a painless way to do that. “No,” he said.

And at the end of the press conference, Powell echoed a famous line from former European Central Bank president Mario Draghi. Draghi said the ECB would do “whatever it takes” to save the euro.

We’ve written what we think is a plausible path to the federal funds rate. “The way we do it right to restore price stability will be enough — it will be enough,” Powell said.

Read: Dow down 500 points because Powell’s Fed is not a blinker.

Don’t look for a sale of mortgage-backed securities anytime soon

There is current talk in financial markets that the Fed is getting close to selling the $2.7 trillion in mortgage-backed securities on its balance sheet.

Asked if the sale was imminent, Powell said, “No.”

The Fed has said it may consider selling mortgage bonds once its balance sheets are well-rounded.

“It’s not something we’re considering right now and I don’t expect to consider it anytime soon,” Powell said.

“It’s not time to turn to him, and it’s not close,” he said.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *