Fed’s dovish signalling: 5 takeaways from Powell’s last night speech

Fed interest rate unchanged: US Federal Reserve has decided to maintain interest rate at its 23-year high amid persistent inflationary pressure in US economy. US central bank chairman Jerome Powell, in press conference after Federal Open Market Committee meeting, me it clear that committee requires more confidence before moving ahe with any rate cuts. 

Here are some of major takeaways from Powell’s last night press conference that are likely to have a strong impact on economics and markets around world. 

Require greater confidence before any rate cuts

In press conference followed by Fed’s two-day meeting in Washington, Jerome Powell mentioned that US central bank wants to be more sure that inflation is getting closer to its target of 2 per cent. However, recent data has not given m that certainty, as inflation reings have been higher than expected. 

“So far this year, data have not given us that greater confidence in particular” that rate cuts are appropriate. Reings on inflation have come in above expectations. It is likely that gaining such greater confidence will take longer than previously expected.”

US central bank is keeping a close eye on inflation to make sure it's not rising too fast, which could affect economy. y want to be sure before making any decisions about changing interest rates.

Rate hikes are ‘unlikely’ 

Powell suggested that next change in policy rates is unlikely to be an increase. He mentioned that committee requires convincing proof that ir current policy is not effective enough in curbing inflation to ir target of 2 per cent. 

“I think it’s unlikely that next policy rate move will be a hike. I’d say it’s unlikely. We would need to see persuasive evidence that our policy stance is not sufficiently restrictive to bring inflation sustainably down to 2 per cent over time. That’s not what we think we’re seeing.”

Election plays no role in rate cut strategy

When questioned about upcoming presidential elections in United States, Powell me it clear that politics plays no role in central bank’s rate-move timings. 

“It’s hard enough to get economics right here. se are difficult things, and if we were to take on a whole or set of factors and use that as a new filter, it would reduce likelihood we’d get economics right.”

Keeping Fed alienated from any political intervention in US economic policymaking, Powell said, “This just isn’t part of our thinking. It’s not what we’re hired to do.”

Powell underplays stagflation concerns 

Federal Reserve Chair Jerome Powell dismissed worries of stagflation—a combination of economic stagnation and high inflation. Powell shared that current inflation levels are much lower compared to stagflation crisis of 1970s, and unemployment rates are close to historic lows.

“I don’t really understand where that’s coming from. economic growth is at 3 per cent and inflation is below 3 per cent. I don’t see ‘stag’ or ‘-flation.” 

Fed’s shrinking balance sheet, not a policy indicator 

Powell highlighted that decision to ease pace of reducing central bank's balance sheet is not aimed at stimulating economy or loosening monetary policy. Rar, it is intended to ensure a smooth process of grually shrinking balance sheet to its desired level. 

“It really is to ensure that process of shrinking balance sheet down to where we want to get it is a smooth one and doesn’t wind up with financial market turmoil way it did last time we did this, and only or time we’ve ever done this.”