Federal Reserve Chair Jerome Powell and his staff have unanimously agreed to raise interest rates another 0.75% as of November 2. Although he expressed awareness of rising rates on both consumer prices and the ability to borrow, Powell insisted the Fed is willing to do whatever it takes to put inflation behind them.
“I am pleased that we have moved as fast as we have,” said Powell, when asked about the unprecedented pace of rising rates.
“If we don’t get inflation under control, we will be in a situation where inflation will become entrenched,” Powell continued when discussing the “loosening” of policy in regard to the ongoing rate hikes.
"It's very premature in my view, to think about or be talking about pausing,” he said. “We have a ways to go [for] our policy. We need ongoing rate hikes to get to that level of sufficiently restrictive, and we don't really know exactly where that is.”
If we don’t get inflation under control, we will be in a situation where inflation will become entrenched. — Jerome Powell, chair of the Federal Reserve
In areas such as rent prices and real estate, Americans who are looking to borrow long-term face two risks. They will not only pay more for the money they need to borrow to make that kind of purchase, but now have another reason to reconsider their purchase as inflation approaches entrenchment in the economy.
“The cost to the people we don’t want to hurt goes up as we go on in time,” said the chairman.
Meanwhile, the job market continues to be tight, with supply and demand still out of balance. But Powell said he didn't think wage increases were the "principal story" of why prices are going up. “We want wages to go up,” he said. “We just want them to go up at a rate that is consistent with 2% inflation.”
Powell stressed the Fed's efforts, with a goal of price stability, are a step in the right direction on an international level. In the United States it is a good thing for the global economy over time, he said.
"No one knows whether there is going to be a recession," Powell said. "Our job is to restore price stability so we can have a strong labor market that benefits over time."
The tone of Fed Chair Jay Powell’s comments was quite hawkish, which means the Fed still has a way to go to fight inflation, and the level of interest rates will be higher than previously expected. — Jack McIntyre, portfolio manager, Brandywine Global
These types of policies also take time to see their full ripple effects. It is possible the unprecedented aggressiveness of the Fed hasn’t come to fruition as of yet. Some argue that, despite Powell's hints at sympathy, there is no slowing down the Fed towards their 2% core inflation goal.
"The tone of Fed Chair Jay Powell’s comments was quite hawkish, which means the Fed still has a way to go to fight inflation, and the level of interest rates will be higher than previously expected," said Jack McIntyre, portfolio manager at Brandywine Global.
"Today was all about, and only about, giving the Fed flexibility or optionality to back off their path of 75bps hikes," McIntyre said. "We don’t know what the terminal rate will be, but Powell told us it’s higher than markets expect. CPI reports, labor reports, and the ongoing impact of China’s zero-COVID policy on global growth are all more important than any signal of Fed action."
"From this point on, we should think slower and steady until something breaks," said Mcintyre.