Comments from Jerome Powell at the 2022 Jackson Hole symposium.
- July lower inflation numbers are welcome but short of what's needed by the Fed before confident in inflation moving down
- Fed is moving policy 'purposefully' to a level sufficiently restricve to return inflation to 2%
- With inflation running far above 2 percent and the labor market extremely tight, estimates of longer-run neutral are not a place to stop or pause
- 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 conditison and some pain to households
- There are unfortunate costs of reducing inflation but failing to resture price stability
- The historical record cautions strongly against prematurely loosening policy
- The longer high inflation continues, the greater the chance it will be come entrenched
- Estimates of longer-run neutral are not a place to stop or pause.
- Full speech
What might be getting the market's attention is the last paragraph of the speech:
We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored. We will keep at it until we are confident the job is done.
I don't believe he's used the word 'forceful' before so that could be something, but it's with the 'are taking' language with is past/ongoing rather than 'will take forceful action' which is more of a signal.
Update: He in fact uses the term 'forceful' twice in the speech, which isn't something he used at the recent Fed meetings.
The speech is also a short one and the points were very strong and simple on hiking, getting inflation under control and not cutting too soon. That's resonating with the market.
The next question is: Does Powell really have the credibilty to say that? If the economy is bad next year will he still be hiking? I don't think so.
In terms of the clearer parts of the speech, I don't see the hawkish bent. He works to keep a September 75 bps hike on the table but makes it clear that it's data dependent. He warn that the Fed won't U-turn next year but that's exactly what other Fed officials have been saying. The talk about pain and whatnot is a bit frightening but there's a lot of nuance and interpretation there. I don't think he's talking about 5% unemployment and 'below trend' growth is similarly vague.
It all really comes back to the question: Do you think the Fed would actually hike rates in a recession and keep them there?