Powell: Rates Will Rise Until Job Is Done

[38Chevy454]

Fed chair Powell in his remarks today said about interest rates “We will keep at it until we are confident the job is done,” . Maybe the Fed is finally getting it that inflation is running much higher than they want and taking action? It's going to be a bumpy ride of they are serious about raising rates and the job market all of a sudden turns bad. They are numerous companies that are announcing layoffs, if those become more commonplace then I think the economy will become worse than it is currently. Making the recession (whether officially called that or not) longer and deeper. So far gov't has been throwing money at the problem, which never seems to end well.

The other side of the discussion is that inflation causes lower demand, and prices will seek a more normal value. Same with employment numbers, less employed means less overall money being spent by consumers leading to lower demand. Inflation becomes a self limiting problem to some extent. I think this is what the Fed is hoping will happen. Inflationary pressures will subside on their own so they do not have to raise interest rates as much. Trying to avoid an over reaction to the inflation where they cause worse problems and then have to pendulum back the other way to stimulate the economy.

So what do you think? Have confidence in the Fed? What about gov't spending throwing additional money out contributing to inflation when Fed is trying to control it?

 

[audreyh1]

Punishment will continue until morale has improved?

Couldn’t resist.

 

[MichaelB]

Punishment will continue until morale has improved?

Yup, that sums it up well. This speech is a surprise to … no one.

 

[MarieIG]

OP - I agree with your assessment.

 

[Montecfo]

I hope his words become true and they work to fight inflation. It SOUNDS like they are becoming less dovish, or at least want the market to think that.

Last I looked, prospects for next rate hike were balanced between 50 and 75 basis points.

No, I do not think investors fully "believe" the Fed, as evidenced by muted responses to their pronouncements in many cases.

 

[audreyh1]

On employment: IMO there are simply going to be fewer workers “going forward”.

 

[lawman]

I think higher interest rates will not solve the problem..I don't really understand very well how money supply is reduced but until some of the trillions that were injected are removed the problem will persist..

 

[ivinsfan]

There's a comment that means absolutely nothing, typical vague stuff so they don't spook the markets!

 

[Car-Guy]

Right hand trying to fix what the left hand is doing.


Can't believe the FOX business channel didn't cover the speech live. Add on top of that Schwab had trading problems VIA their on-line trading this morning... Should have just stayed in bed!

 

[aja8888]

We have never had a recession without high unemployment.

https://wolfstreet.com/2022/08/25/r...or-market-is-not-there-yet-nor-are-consumers/

The most immediate measure that we have of a deterioration in the labor market is the data on unemployment insurance, which the Department of Labor releases weekly. Over the decades, significant and lasting spikes in initial unemployment claims were associated with recessions, and preceded recessions, and so we watch them closely when the recession watch begins.

The number of people filing a new claim for unemployment insurance dipped to 243,000, seasonally adjusted, the second week in a row of declines, according to the Department of Labor. These initial unemployment claims were a little above the historic lows earlier this year but were still in the range of the strong labor market before the pandemic:

 

[Closet_Gamer]

I hope they crank down hard on inflation. Recessions come and go, but inflation stays with you forever.

Much better to risk hitting the breaks too hard which causes a recession and a temporary drop in the market than to see real asset values erode by 8-10% annually.

I'd love to a 100bps at the next meeting, but I don't think we will.

 

[pb4uski]

On employment: IMO there are simply going to be fewer workers “going forward”.

Yup. We need more legal immigration and robots to help address fewer workers.

Pre-covid, legal immigration to the US was just a little more than 1 million people annually... about 0.3% of US population.

 

[pb4uski]

I hope they crank down hard on inflation. Recessions come and go, but inflation stays with you forever.

Much better to risk hitting the breaks too hard which causes a recession and a temporary drop in the market than to see real asset values erode by 8-10% annually.

I'd love to a 100bps at the next meeting, but I don't think we will.

Agree... inflation is a larger long term danger than a recession... but the fed is pretty gutless so I hope that they stick to their guns.

 

[Montecfo]

Well at least the Fed is heading in the right direction.

We really need to end the deficit spending which is working at odds with the Fed.

 

[teejayevans]

Yup, that sums it up well. This speech is a surprise to … no one.

Apparently it was a surprised to the market.

 

[audreyh1]

I think the stock market just had a short bout of wishful thinking again.

 

[Closet_Gamer]

I think the stock market just had a short bout of wishful thinking again.

Dow is down 700 pts...I think the market heard Mr. Powell.

We will see if the market remembers tomorrow!

 

[Car-Guy]

Dow is down 700 pts...I think the market heard Mr. Powell.

We will see if the market remembers tomorrow!

My guess is the market will be absolutely flat tomorrow.

 

[ShokWaveRider]

My guess is the market will be absolutely flat tomorrow.

And the Next day.

 

[aja8888]

And the Next day.

I'm keeping my powder dry over the next to days.....

 

[W2R]

So what do you think? Have confidence in the Fed? What about gov't spending throwing additional money out contributing to inflation when Fed is trying to control it?

Here's what I think - - I think that the government will do what it will do; being just a little old lady retiree, I don't have control over any of this, myself. So, I plan to hope for the best, and prepare for the worst. I'll polish up my LBYM skills, work on maintaining a decent attitude as much as I can, save money, and try to wait patiently for this situation to resolve itself.

And then, if/when I need to vent, I'll vent to Frank and vice versa since our politics are almost perfectly aligned. So, I know whatever I say won't be seen as hostile or offensive by him, even though I have quite a temper. I like the members here too much to take a chance on possibly skirting to close to a political diatribe here and upsetting anybody.

 

[Car-Guy]

I'm keeping my powder dry over the next to days.....

Actually, I'm thinking of buying before the close today.... Maybe some F, some CSCO and MSFT.... Not a lot but enough to make a few quick bucks by mid next week. (hopefully).... Those are all companies I can hold if needed anyway....

Actually, I think the market is over reacting (again) since wasn't this all expected?

 

[Freedom56]

I'm sure Powell and others were concerned about the active stock market casino mentality where worthless companies are being boosted by traders squeezing short sellers. This bubble is no different from the scenario in 2000. We had a Fed raise rates to deflate the bubble then and the same is going on today. Like back in 2000, it will take many years to deflate this bubble.

With respect to interest rates, the Fed can only go so far with the level of the national debt. The two year treasury normally tracks where the Fed funds rate will be in 12-18 months is at 3.39% and below the target Fed funds rate of 3.8% by the end of 2023. After the rate hike in September, 30 day treasuries should rise close to 3% with money market funds lagging behind by a few months.

Fed policies have hurt savers for decades. This is finally starting to reverse which is a good thing if you buy CDs, hold cash, buy individual treasury, corporate, and municipal bonds.

 

[aja8888]

Actually, I'm thinking of buying before the close today.... Maybe some F, some CSCO and MSFT.... Not a lot but enough to make a few quick bucks by mid next week. (hopefully).... Those are all companies I can hold if needed anyway....

Actually, I think the market is over reacting (again) since wasn't this all expected?

Just remember, nothing goes to heck in a straight line. This is the third bear market rally this year and it's turning south! Good luck!

 

[Car-Guy]

Just remember, nothing goes to heck in a straight line. This is the third bear market rally this year and it's turning south! Good luck!

Well I was going to the casinos this weekend anyway. Might as well start right now on line....