US Federal Reserve (Fed) President Jerome Powell is delivering opening remarks and speaking about the policy outlook at the central bank’s annual Jackson Hole Economic Symposium, in Wyoming.
Key quotes
Central bank is moving policy ‘purposefully’ to a level sufficiently restrictive to return inflation to 2%.
Restoring price stability will take some time, require using central bank’s tools ‘forcefully’.
Reducing inflation likely to require sustained period of below-trend growth.
There will very likely be some softening of labor conditions, some pain to households.
These are the unfortunate costs of reducing inflation, but failing to restore price stability would mean far greater pain.
Benchmark overnight interest rate at long-run neutral estimate of 2.25%-2.50% ‘not a place to stop or pause’.
Overarching focus is to bring inflation back down to 2% goal.
Decision on September rate hike will depend on totality of data since July meeting.
At some point, as policy stance tightens further, it will be appropriate to slow pace of rate increases.
Restoring price stabilty will likely require maintaining a restrictive policy stance for ‘some time’.
Fed must keep at it until the job is done.
Historical record cautions strongly against loosening policy prematurely.
US economy clearly slowing, but has strong underlying momentum.
Labor market is particularly strong, but out of balance; high inflation has continued to spread.
July’s lower inflation readings welcome, but short of what will be needed before central bank is confident inflation is moving down.
Central bank committed to moderating demand to better align with supply.
The longer high inflation continues, the greater the chance it will become entrenched.
Market reaction
In an immediate reaction to Powell’s comments, the US dollar index was largely unchanged, keeping its range near-daily lows of 107.71. The gauge is shedding 0.62% on the day.
Gold is having a volatile session, still showing a negative bias after being unable to break key short-term resistance levels. It bottomed at the begging of Powell’s speech and then rebounded.
The yellow metal bottomed at $1741, the lowest in three days and then rebounded, to as high as $1755. Again, the price failed to break the critical area and then pulled back under $1750.
It remains in negative territory for the day and the odd of another test of the $1740 support remains in place, particularly while under $1750. If gold managed to break firmly above $1755, the intraday outlook could change. Above the next strong barrier is seen at $1770.
Critical for gold price action, US yields are moving without a clear direction. The 2-year yield jumped to 3.45% and then pulled back toward 3.40% while the 10-year hovered around 3.04%, below the level it had prior to Powell’s speech.
Fed Chair mentioned that higher interest rates will persist for some time and added the “historical record cautions strongly against prematurely loosening policy”. The tone of Powell was seen as “hawkish”.
The latest report on Friday showed a better than expected reading in the University of Michigan’s Consumer Sentiment Index for August which came in at 58.2 against the market consensus of 55.2.
Earlier on Friday, a report showed the Core Personal Consumption Expenditure Price Index dropped in July by 0.1% unexpectedly, the annual rate declined from 6.8% in June to 6.3% against expectations of 7.4%.