Powell warns that the resilience of the US economy may force further rate hikes

In a speech marred by the interruption of a group of climate activists, Federal Reserve Chairman Jerome Powell warned that GDP growth data, much better than imagined, and the resilience of the labor market “are welcome.” , but they can force interest rates to continue rising if they cause inflation to stagnate.

The president of the Fed celebrated that The “restrictive” policy of the central bank is already being noticed in the US, with a slow but sustained decline in the CPI and a less tight labor market than it was after the pandemic. But The evolution of the economy is being much better than predicted the historical background behind such strong and rapid rate increases, what worries the Fed.

Thus, Powell promised that they would keep rates high for the time necessary to stabilize inflation, and made it clear that if the data suggests that current levels are not enough to cause “a period of below-average economic growth” that ends to bring the price increase up to the desired 2%, Their hand will not tremble to resume rate increases.

Powell also pointed to debt as one of the main transmission mechanisms of this tougher policy to the economy, something that has pushed the 10-year bond to rise to 4.98%, about 7 basis points higher during the speech. For its part, the stock market has been resentful. Wall Street, which was trying to rebound, has turned red.

In any case, the chairman of the Federal Reserve celebrated the possibility of achieving the ‘soft landing’ that reduces inflation without causing a recession, and recalled that the full effects of the rate increases already carried out on the economy have not yet been seen. In addition, he insisted that it would be just as bad to not do enough and allow high inflation to take hold as it would be to do too much and cause an unnecessary recession, so Fed officials “will continue to pay close attention to the data” before making new decisions. .

The anecdotal point of the event was marked by an interruption caused by activists against climate change, who broke into the room where Powell was speaking to call for more measures against global warming, and by a series of technical problems that made it difficult to hear the participants. .

Analysts expected a ‘hawkish’ speech by the president, recalling his mantra of “high rates for longer” that will discourage expectations of a rapid rate cut in the coming year. The markets, however, have reacted assuming that rates will remain at 5.25%-5.50% in the next meetingand shooting up to 69% the probability that there will be no increases in December either.