Fed Chairman Jerome Powell spoke out last week for the first time since the new inflation numbers came in higher than expected, for the third month in a row.
While the Fed had previously planned to cut interest rates this summer, the stronger-than anticipated inflation indicators have shaken up those plans. This is a clear shift in the outlook of the Fed, as they would like to see these numbers go down before cutting interest rates.
According to Jerome Powell, they would like more time to see the restrictive policies work. The current state of the workforce is strong, and inflation is slowly coming down. Powell also said that there would be no plans of raising interest rates. If the economy were to take a sharp downturn, Powell did say they would lower interest rates.
Most of the financial sector took a hit after the PCE and CPE numbers came out for the month. While Jerome Powell addressed the public, the S&P 500 fell slightly, and 2-year Treasury note yields briefly hit over 5% for the first time since November.
Link: Fed Chair Jerome Powell Dials Back Expectations on Interest-Rate Cuts - WSJ
It seems since the beginning of the semester we have been waiting on interest rates to be cut. The unexpected increase in inflation makes me understand why they are hesitant, and makes sense to want to see these numbers go down before cutting rates.
ReplyDeleteWe can see the effect of the prolonged expectations for rate cuts in the MBA 30-yr mortgage rate. The tracker has shown mortgage rates spike up over the past few weeks since the disappointing CPE numbers. I wonder when we will see interest rates decrease, I hope for lowered rates before 2025.
ReplyDeleteFrom the inflation numbers that I have been seeing, it seems like it is not unlikely that we see another raise in interest rates as inflation does not appear to be slowing.
ReplyDeleteI believe that it is unlikely the interest rates will go down any time soon. This is because I believe we are going into a recession, and I think interest rates will go up until we are out of the recession.
ReplyDeleteWhat led to the change in the Fed's plan for interest rate cuts, and how did it affect the financial sector?
ReplyDeleteThe Fed has not really changed its plan for interest rate cuts. Powell's stance has been that the interest rates will change depending on inflation and other economic indicators as they come in. Since the data has come in stronger than expected, the Fed has delayed their interest rate cuts until they see the numbers they like. However, it has now been a few months and inflation is still above where the fed would like it to be. This means that the Fed will continue to delay interest rate cuts. If they persist for too long, the Fed may look to raise interest rates in the future, at least that's what many analysts seem to believe.
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