Fed Chairman Jerome Powell, like the ECB, said he is “strongly committed” to fighting inflation. The statement is significant because it was Powell’s last public appearance before the Fed’s September 20-21 rate decision meeting. Therefore, the market is expecting another 75 basis points hike.
Federal Reserve (Fed) Chairman Jerome Powell also stressed the importance of curbing inflation now, before the public gets too used to higher prices and takes continued price increases for granted, following the European Central Bank’s (ECB) interest rate decision on Thursday, according to Privátbankár.
In a unanimous decision on Thursday, the European Central Bank raised interest rates by an unprecedented 75 basis points following a 50 basis point hike in July and signalled further hikes, prioritising the fight against inflation despite the bloc’s economy likely to sink into recession this winter.
Like the ECB, Jerome Powell said he was “strongly committed” to fighting inflation. The Fed has already raised its benchmark interest rate four times this year, so the base rate now stands at between 2.25 and 2.5 percent. The statement is also significant as it was the Fed chair’s last public appearance before the central bank’s rate decision meeting on 20-21 September.
Underlining his commitment to fighting inflation, Powell said that expectations play an important role and were a crucial reason why inflation was so persistent in the 1970s and ’80s.
Markets are widely expecting the Fed to implement a third consecutive 0.75 percentage point hike at its next rate decision meeting in September. The likelihood of this has risen to 86 percent following Powell’s comments, according to CME FedWatch. Both Goldman Sachs and Bank of America have advised clients to expect this three-quarter point hike.
The reason for the aggressive monetary action is to ensure that inflation, which is hovering around its highest level in more than 40 years, does not become ingrained in the public consciousness – Powell said.