All eyes will be on Federal Reserve Chair Jerome Powell’s speech to be delivered this month-end. Powell will speak at the Hutchins Center on Fiscal and Monetary Policy on the outlook for the economy and the changing labor market on Wednesday, November 30. After making his remarks, Powell will be interviewed by David Wessel, the Hutchins Center’s director, and answer audience questions. David Wessel, Director, The Hutchins Center on Fiscal and Monetary Policy Senior Fellow – Economic Studies, will be the moderator. The welcome address and the introduction will be from Glenn Hutchins, Co-Founder, North Island Co-Chair of the Board, The Brookings Institution.
Stock market investors will be watching for any indications from Chair Powell’s speech on November 30 regarding the terminal rate and the rate of hikes following the December meeting.
In an effort to meet its dual mandate of price stability and maximum sustained employment, the Federal Reserve is hiking interest rates. The U.S. labour market has shown to be quite durable thus far; unemployment is currently 3.7%, the lowest level in decades. However, the pandemic’s effects on the job market are still being felt in a number of ways. It has not yet fully recovered to pre-pandemic levels for labour force participation. While some firms are firing employees, many others claim it is difficult for them to fill positions. And for many workers, working remotely seems to be here to stay.
The Fed may continue raising rates and probably for a longer period of time due to a tight labour market and high services inflation. What has already been discounted by the market is the slowing down of the pace of rate hikes and a higher terminal rate, both of which Powell had already hinted at in his early November conference.
Going forward, the US Federal will take into account the cumulative tightening of policy and the impact of earlier rate hikes that will reflect in the economy with a lag. So far in 2022, from near-zero rates, the Fed has hiked rates by 375 basis points. A 50 bp rate hike at the December FOMC meeting on December 13-14 is almost priced by the market.