Market participants and traders were all ears when Federal Reserve Chairman Jerome Powell spoke at the IMF conference 2023. Powell stated in remarks prepared for delivery at an International Monetary Fund research conference, “The Fed is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time; We are not confident that we have achieved such a stance.”
Powell warned about the cooling down of inflation. “We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes. If it becomes appropriate to tighten policy further, we will not hesitate to do so,” says Powell.
Here are a few market voices on the comments made by Powell during the IMF conference.
Jeffrey Roach, Chief Economist for LPL Financial, (Charlotte, NC)
The economy has not likely felt the full impact of the past rate hikes, calling for policy makers to proceed carefully. Chairman Powell issued a warning to investors too giddy on the prospect of rate cuts next year. The Fed will be true to its mandate and hike further should inflation reaccelerate.
Yields initially spiked on the hawkish tone from the Chairman of the Federal Open Market Committee but we should expect yields to come back down as markets prep for next week’s CPI report.
The main reason markets are jittery is the Chairman warned investors not to be misled by the “head fakes” of a few good months of data. The bottom line is that next week’s inflation data should provide some salve for the markets as headline inflation will likely be soft from easing energy prices.
Sam Millette, Director of Fixed Income for Commonwealth Financial Network (Waltham, MA)
Federal Reserve Chair Jerome Powell reiterated the central bank’s commitment to combating inflation through tighter monetary policy in comments given at an International Monetary Fund conference.
Powell continued to highlight the Fed’s cautious approach to setting rates in the meetings ahead, however, he did indicate that the Fed would not hesitate to hike rates further if deemed necessary. Looking forward Powell indicated that the Fed still has a long way to go in order to sustainably get inflation back to their 2% target, but he also cautioned that the Fed will try to avoid overtightening due to a “few good months of data”.
Market reaction to the comments saw both short- and long-term yields rise moderately, with the 2-year Treasury yield rising up to around 5% following the comments. While this is higher than yesterday’s closing yield of 4.93%, it’s well below the recent high of 5.19% that we saw in mid-October.
Quincy Krosby, Chief Global Strategist for LPL Financial (Charlotte, NC),
With 33 days left until the next Fed meeting, there will be an important spate of inflation-related data for the FOMC to assess the need for another rate hike. Markets also responded to a 30-year Treasury auction in which the yield settled at a higher rate than anticipated.
Markets have had a strong move but have edged closer to overbought levels. Powell’s comments coupled with a disappointing auction is a logical excuse for the market to begin consolidating gains.