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Chairman of the Federal Reserve System Jerom Powell On Friday, he learned the indication of the possible reduction in the interest rate forward when he noted the high level of uncertainty, which makes it difficult to work for monetary politicians.
In his long -awaited speech in the Fed’s annual conclave in Jackson Holle, Wyoming, Central Bank leader prepared notes Tax, trade and immigration policy are quoted by “extensive changes”. The result is that “the risk balance appears to change” between the goals of full employment of the Fed and stable prices.
Watch as Powell delivers your remarks live
Although he noted that the labor market remains in good shape, and the economy has shown “stability”, he said that the dangers were growing. Meanwhile, he said Tariffs cause risks Such inflation can increase again – Stagflation scenario that the Fed should avoid.
With the orientation interest rate of the Fed – the full interest point below, where it was when Powell came with the main activity a year ago, and the unemployment rate is still low, the conditions allow us “to continue carefully when we consider changes in our political position,” Powell said.
“However, with politics in the restrictive territory, basic prospects and changing risks, the establishment of our policy can be guaranteed,” he added.
It was as close as it came during the performance to approve the rate of the rate that Wall Street is widely believed that the open market federal committee will come, which will meet on September 16-17.
However the remarks were enough Send stocks that flew and Treasury gives a fall. A Dow Jones Industrial Medium showed profits more than 600 points after public release Powell’s speech, while in policy that depends on politics 2-year-old treasury They saw that 0.08 percentage points drops up to 3.71%.
In addition to market expectations, president Donald Trump He demanded that the Fed’s aggressive cuts in the terrible public attacks he lobbied in Powell and his colleagues.
The Fed has spent its benchmark ranging from 4.25% -4.5% since December. Politicians continue to refer to the uncertain impact that tariffs will have on inflation as a cause of caution and believe that current economic conditions and a slightly restrictive policy stance make further decisions.
The importance of Fed’s independence
Despite the fact that without addressing the requirements of the White House, Powell noted the importance of the Fed’s independence.
“FOMC members will make these decisions, based solely on evaluation and consequences for the economic worldview and the balance of risks. We will never deviate from this approach,” he said.
The speech goes against the backdrop of constant negotiations between the White House and its global trading partners, the situation is often in the flow and without clarity where it will end. Recent indicators show that consumer prices are gradually pushing higher but wholesale costs more quickly.
In terms of Trump administration, the tariffs will not cause prolonged inflation, thus guaranteeing a decrease in rates. Powell’s position in the speech was that a number of results are possible, and the “reasonable basic case” is that the tariff consequences will be “short-range prices”, which would probably not be the cause for maintenance. However, he said that nothing was true at this point.
“In order to increase the tariff, it will be time to increase tariffs through the supply chains and distribution network,” Powell said. “Moreover, the tariff rates continue to develop, potentially prolonging the adjustment process.”
In addition to the generalization of modern conditions and potential results, the speech touched upon a five -year review of the Fed on its political base. The review has led to several notable changes since the Central Bank was last fulfilled this task in 2020.
At the time, in the midst of the COVID pandemic, the Fed moved to the “flexible medium inflation” mode, which effectively will allow inflation to increase higher than the 2% target of the Central Bank after a long storage period below. The result is that politicians can be patient with slightly greater inflation if it meant insurance more complete restoration of the labor market.
However, shortly after the adoption of the strategy, inflation began to grow, ultimately reaching the 40-year-old highs, while politicians largely rejected the rise as “transitional” and do not need hiking. Powell noted that the harmful consequences of inflation and lessons.
“As it turned out, the idea of deliberate, moderate inflation turned out to be insignificant. There was nothing intentional and moderate in inflation, which came a few months after we announced a change in 2020 in a statement of consensus, as I publicly recognized in 2021,” Powell said. “The last five years have been a painful reminder of the difficulties that impose high inflation, especially on those smallest able to achieve higher costs.”
Also during the Fed review, it confirmed its commitment to its 2%inflation. There were critics on both sides of the issue, some believe that the rate is too high and can lead to a weaker dollar, while others see the central bank to be flexible.
“We believe that our commitment to this purpose is a key factor that helps keep long-term inflation expectations,” Powell said.
