Federal Reserve, Jerome Powell – Talking Points
- Fed Chair Powell pledges “full toolkit” in the fight against historic inflation
- Powell hints at potential pain for households in the months ahead
- Remarks follow July PCE data that came in softer than expected
Federal Reserve Chair Jerome Powell came out swinging in his speech at the Jackson Hole Economic Symposium, pledging to use all tools available to combat decades-high inflation. Powell’s remarks reinforced the notion that the Fed remains committed to returning inflation to the central bank’s 2% target. As inflation sits at 40 year highs, Powell revealed that some households may feel pain from elevated interest rates as the economy begins to cool. Despite raising the Fed Funds rate by 225 basis points over the last four policy meetings, Powell said that the current level of rates is “no place to stop or pause” with policy potentially heading to restrictive territory by year-end.
Friday’s speech was preceded by PCE data at 8:30 EST that came in softer than expected, initially providing a boost to risk assets. Stocks reversed as Powell began speaking, as US Treasury yields shot higher. While recent inflation data for July offers hope that inflation may have peaked, Powell indicated that the recent data simply is not enough “for the Fed to be sure that inflation is falling.” Powell continued on to state that “We (the Fed) are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%.”
Notably, the speech was short. Powell began his remarks by saying they “will be shorter, my focus narrower, and my message more direct.” Chair Powell reflected on what past inflation battles have taught the Fed, stating that expectations remain critical and that the Fed must “keep at it until the job is done.”
Citing former Fed Chair Paul Volcker in his speech, Powell stated that the Fed’s failure to act persistently in the 1970s is what caused Volcker to hike the US economy into recession. The overarching message from Powell’s 2022 Jackson Hole speech must be his intention and desire to remain persistent in the fight against inflation, despite the potential for some collateral damage throughout the US economy.
If there is a standalone quote from this morning’s speech, it may be the following:
“Without price stability, the economy does not work for anyone.”
US Dollar 1 Hour Chart
Chart created with TradingView
The US Dollar is pointing higher following the Jackson Hole event risk, after falling sharply into and following the release of PCE data. Having cooled from the recent high of 109.29, the US Dollar Index had continued to hold a key support zone just below 108.20. Soft PCE data saw this zone break, but the dip was short-lived thanks to Chair Powell. The idea of a policy “pause” and not a “pivot” may continue to buoy the Greenback as traders digest the prospect of a Fed Funds rate that remains elevated for some time. The Greenback also remains bolstered due to counterparty weakness, particularly in Sterling and the Euro. If price can regain this support zone around 108.20, a retest of 109+ may be on the cards early next week.
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— Written by Brendan Fagan
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