Central Bankers Acknowledge Cooling Inflation, Push for Price Stability
By The Federal Reserve, Bank of England and European Central Bank all have recently acknowledged the cooling of inflation in their respective regions.[0] Yet, they all agree that more rate hikes are necessary to ensure price stability.[0]
Fed Chairman Jerome Powell spoke of the ongoing disinflationary process, stating “It is gratifying to see the disinflationary process now getting underway.”[1] He believes it may take until 2024 to bring inflation closer to the Fed's 2% goal.[2]
The Fed hiked rates by 25 basis points on February 1 and Powell delivered a dovish message, suggesting the Fed was close to declaring victory over inflation.[3] The US Treasury yields declined and EUR/USD reached new cycle highs around 1.10.[4]
The ECB and BoE are expected to hike their rates by 50 basis points, with the ECB continuing to push a hawkish line and the BoE signaling the peak in rates being close.[5]
The US added 517,000 jobs in January, nearly twice the prior month’s advance and above all estimates in a Bloomberg survey.[6] Powell warned that some softening of labor markets is likely, adding that the Fed's job is to get inflation down to 2%.[7]
Powell warned that it is too soon to celebrate a triumph over inflation.[8] He said it is very difficult to manage the risk of doing too little and finding out in six or 12 months that the job wasn't done.[9] He believes it may take until 2024 to bring inflation closer to the Fed's 2% goal.[2]
Overall, the central banks are looking to ensure price stability and are taking the necessary steps to do so, while also monitoring the data to ensure the right adjustments are made.
0. “Charting the global economy: World growth outlook turns for the better” Economic Times, 5 Feb. 2023, https://economictimes.indiatimes.com/small-biz/trade/exports/insights/charting-the-global-economy-world-growth-outlook-turns-for-the-better/articleshow/97616801.cms
1. “The word that made stocks fall in love with the Fed: Morning Brief” AOL, 2 Feb. 2023, https://www.aol.com/word-made-stocks-fall-love-110013234.html
2. “Fed Chair Powell says inflation is starting to ease, but interest rates still likely to rise” CNBC, 7 Feb. 2023, https://www.cnbc.com/2023/02/07/fed-chief-powell-says-the-the-disinflationary-process-has-begun-but-has-a-long-way-to-go.html
3. “Fed Chair Powell says ‘disinflationary process has begun' in the US economy” Yahoo News, 7 Feb. 2023, https://news.yahoo.com/fed-chair-powell-says-disinflationary-process-has-begun-in-the-us-economy-175915718.html
4. “Tighter monetary policy – Lower bond yields” FXStreet, 2 Feb. 2023, https://www.fxstreet.com/analysis/tighter-monetary-policy-lower-bond-yields-202302020656
5. “Rates Spark: The end is near” ING Think, 2 Feb. 2023, https://think.ing.com/articles/rates-spark-the-end-is-nearing/
6. “Powell Says More Rate Hikes Are Needed” GOBankingRates, 7 Feb. 2023, https://www.gobankingrates.com/money/economy/feds-powell-says-disinflationary-process-has-begun-but-more-rates-hike-needed/
7. “Disinflationary process will take ‘a good amount of time,' Fed's Jerome Powell says” Seeking Alpha, 7 Feb. 2023, https://seekingalpha.com/news/3933021-disinflationary-process-will-take-a-good-amount-of-time-feds-jerome-powell-says
8. “Gold price jumps as Fed Chair Powell talks disinflation but warns it's too early to declare victory” Kitco NEWS, 1 Feb. 2023, https://www.kitco.com/news/2023-02-01/Gold-price-gains-as-Fed-Chair-Powell-talks-disinflation-but-warns-it-s-too-early-to-declare-victory.html
9. “Gold on the Way to $2000 After Bouncing Off the 20 Daily SMA” FX Leaders, 2 Feb. 2023, https://www.fxleaders.com/news/2023/02/02/gold-on-the-way-to-2000-after-bouncing-off-the-20-daily-sma/
