Main Topic: U.S. inflation and the Federal Reserve's efforts to control it.
Key Points:
1. U.S. inflation has declined for 12 straight months, but consumer prices increased 3% year-on-year in June.
2. The Federal Reserve aims to reduce inflation to about 2% and plans to raise its key federal funds rate to over 5%.
3. The Fed is concerned about high inflation due to a strong labor market, rising wages, and increased consumer spending, and aims to slow the job market to control inflation.
Main Topic: The U.S. Federal Reserve's need to raise interest rates further to bring down inflation.
Key Points:
1. Governor Michelle Bowman supports the Fed's quarter-point increase in interest rates last month due to high inflation, strong consumer spending, a rebound in the housing market, and a tight labor market.
2. Bowman expects additional rate increases to reach the Fed's 2 percent inflation target.
3. Monetary policy is not predetermined, and future decisions will be data-driven. Bowman will consider consistent evidence of inflation decline, signs of slowing consumer spending, and loosening labor market conditions.
Main Topic: Federal Reserve officials express concern about inflation and suggest more rate hikes may be necessary.
Key Points:
1. Inflation remains above the Committee's goal, and most participants see significant upside risks to inflation.
2. The recent rate hike brought the federal funds rate to its highest level in over 22 years.
3. There is uncertainty about the future direction of policy, with some members suggesting further rate hikes and others cautious about the impact on the economy.
### Summary
Reserve Bank Assistant Governor Karen Silk says the Official Cash Rate is working despite sticky core inflation and record high employment.
### Facts
- 📈 Headline inflation has been falling for the past year, but non-tradable inflation has not declined significantly.
- 📉 Core inflation has been stuck at 5.8% for the past three quarters.
- 🏠 The average mortgage rate is steadily climbing towards 6%.
- 📊 There are signs that the OCR is working to restore balance in the economy, such as falling forward orders for business and decreasing durable spending.
- 💰 Demand for residential mortgages has fallen 32.9% in the six months ended March.
- 📈 The Reserve Bank expects non-tradable inflation to be lower in the coming quarter on an annual basis, but the quarterly rate may still be high.
- ⛽ Higher petrol prices could lead to tradable inflation having its hottest quarter in two decades.
- 🎯 The OCR mostly targets domestic, or non-tradable, inflation.
- 🎯 The Reserve Bank's forecasts have been criticized for missing its inflation forecast, but Silk defends the forecasts, stating that they are as accurate as any other local economic institution.
- 📆 The Reserve Bank has forecasted that headline inflation will be back in the target range one year from now.
- 🤔 There is doubt about whether inflation will drop below 3% in September 2024, as predicted.
- 💲 Another rate hike may be required to achieve the Reserve Bank's inflation target.
- 💱 Some economists believe that the economic downturn could be worse than expected, making a rate hike unlikely in the near future.
The Federal Reserve must consider the possibility of a reacceleration of the economy, potentially impacting its inflation fight, as retail sales in July were stronger than expected and consumer confidence is rising, according to Richmond Fed President Thomas Barkin.
Experts are divided on whether the US Federal Reserve should raise its interest rate target to 3% to combat inflation and cushion against recessions, with some arguing that raising inflation targets would be futile.
The Federal Reserve aims for a "soft landing" in guiding the US economy by raising interest rates to control inflation while avoiding a recession, with signs of stabilization appearing in Jackson Hole's economy as supply chains normalize and pricing pressures ease.
As Jerome Powell, the chair of the U.S Federal Reserve, prepares to speak at the Jackson Hole symposium, the big question is whether he will signal a major shift in how central banks deal with inflation, particularly regarding interest rates and inflation targets. Some economists are suggesting moving the inflation target range from 2-3 percent, while others argue for higher targets to give central banks more flexibility in combating recession. The debate highlights the challenges of setting and changing formal inflation targets and the ongoing changes in the factors that drive growth and inflation.
The president of the Federal Reserve Bank of Philadelphia believes that the US central bank has already raised interest rates enough to bring inflation down to pre-pandemic levels of around 2%.
Cleveland Federal Reserve Bank President Loretta Mester believes that beating inflation will likely require one more interest-rate hike in the U.S. and then pausing for a while, although she may reassess her previous view of rate cuts starting in late 2024, and she aims to set policy so that inflation reaches the Fed's 2% goal by the end of 2025 to prevent further economic harm.
US inflation remains above 3% as the cost of goods and services rose by 0.2% in July, prompting speculation that the Federal Reserve may freeze interest rates to manage inflation without causing a recession.
BlackRock's Rick Rieder suggests that the Federal Reserve can now end its inflation fight as the labor market in the US is cooling down after gaining 26 million jobs in the past three years.
The Federal Reserve's preferred inflation gauge increased slightly in July, suggesting that the fight against inflation may be challenging, but the absence of worse news indicates that officials are likely to maintain interest rates.
The U.S. is currently experiencing a prolonged high inflation cycle that is causing significant damage to the purchasing power of the currency, and the recent lower inflation rate is misleading as it ignores the accumulated harm; in order to combat this cycle, the Federal Reserve needs to raise interest rates higher than the inflation rate and reverse its bond purchases.
The Federal Reserve is considering whether to raise interest rates even higher to combat inflation, but some policymakers believe that the current level is sufficient and should be maintained for an extended period.
The risk of inflation becoming entrenched is one of the biggest challenges facing the Federal Reserve, according to LPL Financial's Jeffrey Roach.
Deutsche Bank strategists warn that the U.S. economy has a greater chance of entering a recession within the next year due to high inflation and the Federal Reserve's aggressive interest rate hike campaign.
The European Central Bank faces a difficult decision on whether or not to hike rates as the economy slows, while the US releases inflation numbers and rising oil prices create concerns about price pressures.
Investors and the Federal Reserve will have to wait for inflation to return to acceptable levels, as the Consumer Price Index report for August 2023 shows consumer prices rising at half the pace compared to a year ago, despite a jump in gas prices.
Uncertainty in various sectors, including potential strikes, government shutdowns, geopolitical tensions, and the question of future Federal Reserve interest rate hikes, is causing markets to lack conviction, but this week's inflation readings could provide direction for the markets. If inflation comes in below expectations, it may signal that the Fed will not hike rates further, while stronger-than-expected inflation could lead to more rate hikes and market volatility. Additionally, increasing energy prices and the potential strike by the United Auto Workers union add to the uncertainty.
Inflation is expected to fall below the Federal Reserve's 2% target by late next year, despite a recent rise in consumer prices driven by increased energy costs.
Stronger-than-expected U.S. economic data, including a rise in producer prices and retail sales, has sparked concerns about sticky inflation and has reinforced the belief that the Federal Reserve will keep interest rates higher for longer.
The US economy shows signs of weakness despite pockets of strength, with inflation still above the Fed's 2% target and consumer spending facing challenges ahead, such as the restart of student loan payments and the drain on savings from the pandemic.
The Federal Reserve officials signal that they believe they can control inflation without causing a recession, with forecasts of higher economic growth and unchanged inflation outlook.
The U.S. Federal Reserve kept interest rates steady but left room for potential rate hikes, as they see progress in fighting inflation and aim to bring it down to the target level of 2 percent; however, officials projected a higher growth rate of 2.1 percent for this year and suggested that core inflation will hit 3.7 percent this year before falling in 2024 and reaching the target range by 2026.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
Despite predictions of higher unemployment and dire consequences, the Federal Reserve's rate hikes have succeeded in substantially slowing inflation without causing significant harm to the job market and economy.
Despite recent market volatility and central bank decisions, the focus should remain on inflation, which is expected to continue on a downward trajectory, leading to potential gains in the stock market in the fourth quarter.
Bank of America CEO Brian Moynihan believes that the Federal Reserve has successfully tamed inflation but warns that factors like the strength of US consumers may lead to higher interest rates; however, Moynihan expects the US to avoid a recession and experience slow GDP growth in the coming quarters.
Billionaire real estate mogul Barry Sternlicht warns that the Federal Reserve's rate hikes are worsening the economy and causing inflation levels to drop below target, urging the central bank to cease interest rate increases.
Overall inflation has moderated recently in the United States and euro area, but core inflation remains sticky, creating a challenge for central banks trying to meet their inflation targets. Financial conditions have eased, complicating the fight against inflation by preventing a slowdown in aggregate demand. The combination of loose financial conditions and a monetary policy tightening cycle may have dulled the effectiveness of monetary policy. There are risks of a repricing of risk assets and potential vulnerabilities in the financial sector, emphasizing the need for central banks to remain determined in their fight against inflation.
Federal Reserve officials indicate that monetary policy will remain restrictive for a while to bring inflation back to 2%, but there is ongoing debate over whether to increase rates further this year.
The Federal Reserve is facing a tough decision on interest rates as some officials believe further rate increases are necessary to combat inflation, while others argue that the current rate tightening will continue to ease rising prices; however, the recent sell-off in government bonds could have a cooling effect on the economy, which may influence the Fed's decision.
The September CPI report is expected to show that inflation remains above the Fed's target, increasing the likelihood of a rate hike and raising inflation expectations for 2023, potentially leading to further upside risk to rates from Treasury auctions.
U.S. Federal Reserve Governor Michelle Bowman believes that inflation is still too high and that the central bank may need to tighten monetary policy further to reach their 2 percent inflation goal in a timely manner.
The US Federal Reserve should proceed carefully when deciding whether or not to hike interest rates further to bring down inflation, according to two senior officials, as they aim for a "soft landing" to tackle inflation without harming the US economy.
Some Federal Reserve officials are optimistic about finding a monetary policy that lowers inflation to their 2% target without causing high unemployment, but there are risks that could push the Fed onto a more familiar path of an economy struggling with rising borrowing costs and waning confidence.
The Federal Reserve officials are uncertain about the U.S. economy's outlook and plan to proceed cautiously in deciding whether to raise interest rates, with some acknowledging the risks of raising rates too high or not enough to curb inflation.
The upcoming monthly inflation report is expected to show that inflation in the US is cooling off, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, indicating slower price increases in September than in August. However, if the report reveals that inflation remained higher than expected, especially in core areas, it may prompt the Federal Reserve to raise interest rates again, further slowing the economy.
The minutes from the Federal Reserve's September policy meeting confirm that the central bank is closely monitoring data on inflation, adding significance to today's consumer prices report; the report is expected to show a marginal decrease in inflation pressures in September, which would be welcome news for the U.S. central bank, although the path to lower inflation and a return to the 2% target remains uncertain due to the potential impact of higher energy prices caused by the Israeli-Palestinian conflict.
The U.S. inflation rate continues to exceed expectations, raising concerns among investors about the Federal Reserve's rate-hiking cycle and the possibility of maintaining current interest rates in November.