The president of the Fed makes it clear that the fight against inflation is the priority objective for the organization and the losses are imposed on the stock markets
Loud and clear message from the president of the US Federal Reserve (Fed), Jerome Powell, for the global economy: the priority of the monetary organization continues to be the fight against inflation, even if that path ends up leading to a recession.
The idyllic mountains of Jackson Hole, where the world’s main central bankers meet this Thursday, has not served to temper Powell’s spirits, who in an unusual speech of only six pages -in which the word inflation is repeated up to 47 times – assured that “another unusually large hike may be necessary” at the next meeting in September. That is, another 75 basis points higher.
The official thus put an end to the market’s hope that the body could begin to slow down the pace of rate hikes, especially after knowing the inflation figure for July, which moderated to 8.5%, showing that the rise in prices could having reached the ceiling in the first world power. But not for those. “While the July inflation reading is welcome, just one month of improvement falls short of what the Committee needs to see before it can be confident that inflation is coming down,” he said during his speech.
It’s more. He is confident that higher interest rates, lower growth and easing of labor market conditions will help reduce inflationary pressure. But he acknowledges that, as a toll to pay, “they will also bring some pain to families and companies.”
A phrase that has surprised the market, which is well aware that private consumption represents almost 70% of US GDP. Powell recognized that “reducing inflation from current levels will entail a sustained period of below-average growth” . But he assures that any “failure” on the path to achieving price stability “would do much greater damage.”
In an attempt to prevent investors from taking his speech as a message of doom and gloom rather than a show of toughness, Powell also noted that if monetary policy tightening drags on, “it will be appropriate to slow down.”
Despite this nod to the market, the downward reaction has not been long in coming, after a few days of few movements in which investors had been practically paralyzed, waiting for this key event. The falls were accentuated on Wall Street with losses of more than 500 points (-1.65%) for the Dow Jones, while the S&P 500 and the Nasdaq lost more than 2%.
In Europe, losses were also heavy, although more moderate than on the other side of the Atlantic. They exceed 2% in the case of the German Dax and the Italian FTSE MIB, while the Ibex-35 leaves 1.5% on the verge of losing even 8,000 points.
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