(Reuters) – The Federal Reserve will “keep pushing” to tighten U.S. monetary policy until it is clear inflation is declining, Fed chair Jerome Powell said on Tuesday.
“What we need to see is inflation coming down in a clear and convincing way and we’re going to keep pushing until we see that,” Powell said at a Wall Street Journal event. “If we don’t see that we will have to consider moving more aggressively” to tighten financial conditions. The Fed will not hesitate to move beyond a neutral policy, if needed, he said.
IAN LYNGEN, HEAD OF U.S. RATES STRATEGY, BMO CAPITAL MARKETS, NEW YORK
“One of the biggest takeaways from our perspective, and this is why we’re seeing the front-end of the (Treasury) market sell off, is he observed that neutral rates do not represent a stopping or looking around point. So, we’ve always known that neutral is very difficult to estimate, and so the idea that the Fed was going hike a while and then pause and look around was out there, and it was on the table, but he just told us that isn’t going to occur. Now this is very consistent with what we’ve seen in the past, which is once the Fed starts hiking, they continue to hike until something breaks. Now the question becomes is what we should be looking at as a potential break the equity market? is it credit? is it housing? I think that’s going to be this cycle’s big unknown. It’s clearly not the equity market given the price action so far year-to-date and Powell effectively said we’re going to continue hiking until inflation eases.”
“I think it was confirmation that they’re going 50 and 50 in June and July … and the big question is whether they will go 50 in September, that is the unknown.”
(Compiled by the Global Finance & Markets Breaking News team)