Powell Says Fed Would Raise Rates Further If Necessary

Key Insights

• Fed Chair Jerome Powell spoke at the Jackson Hole Symposium. 
• Powell noted that Fed was ready to raise rates further in case inflation remained at high levels. 
• The Fed remains determined to push inflation towards its 2% target. 

On August 25, Fed Chair Jerome Powell delivered his speech at the Jackson Hole Symposium.

He started his speech by saying that Fed was prepared to raise rates further if necessary. The central bank is ready to hold rates at high levels to ensure that inflation pulls back towards the Fed’s 2% target.

According to Powell, it’s too early to celebrate progress after several months of good data. Fed Chair noted that the labor market remained tight. To get to the 2% target, the economy should experience a period of below-trend growth, while the labor market should become less tight.

Powell has also noted that inflation has become more sensitive to labor market dynamics, making Fed’s task more complicated. He promised to proceed carefully, evaluating whether to tighten the policy further or to keep the federal funds rate at current levels.

U.S. Dollar Index pulled back below the 104.00 level after Powell speech. Traders reacted to the minor pullback in Treasury yields. While Powell noted that Fed may raise rates further, he did not say anything new. Traders should expect choppy trading as markets digest Powell speech and also focus on the remarks of other policymakers.

Gold remained stuck in the $1915 – $1920 range. Weaker dollar and lower Treasury yields are bullish for gold markets, but it remains to be seen whether dollar’s pullback will be sustainable.

SP500 made an attempt to settle above the 4400 level as traders reacted to Powell’s words. Powell did not say anything that could be interpreted as dovish, but it looks that traders were afraid that Fed Chair would indicate another rate hike.

In general, traders should expect that trading will stay volatile across various asset classes today.

For a look at all of today’s economic events, check out our economic calendar.