Federal Reserve Chairman Jerome Powell, in his address to the Economic Club of New York on Thursday, indicated that despite a recent slowdown, U.S. inflation remains stubbornly high, potentially signaling an interest rate hike. Powell underscored the Fed's commitment to its 2% inflation mandate but acknowledged that it was premature to discern a definitive trend of diminishing inflation.
He noted that while current data showed inflation exceeding the target, monthly increases had slowed and the annual rate had fallen to 3.7% from over 9% in June 2022. However, he cautioned that realizing the dual mandate goals of maximum employment and stable prices would be a challenging task.
In his speech, which was briefly disrupted by Climate Defiance protesters, Powell suggested that achieving a sustainable return to the 2% inflation goal might necessitate a period of below-average growth and some softening in labor market conditions. He pointed out an existing supply-demand imbalance in the job market which could potentially heighten inflation.
On Thursday, jobless claims hit a record low since early 2023, reflecting tight labor market conditions. The Fed has been using interest rate hikes as a tool to correct this imbalance. If labor market tightness continues, it could call for further monetary policy tightening and possibly delay rate cuts.
Powell also mentioned that evidence of persistently above-trend growth or a resurgence in job openings and wage growth could compel the Fed to reconsider its current pause on rates. This economic scenario could endanger progress on inflation and require additional monetary tightening.
The Fed has recently moderated its aggressive monetary tightening campaign, which had taken its benchmark lending rate to a 22-year peak with the goal of controlling inflation without triggering a recession. Powell described the current policy as restrictive, applying downward pressure on both economic activity and inflation.
According to CME Group (NASDAQ:CME) data, futures traders foresee over a 95% likelihood that the Fed will keep interest rates unchanged following its November 1 meeting. Meanwhile, recent data highlights the continued strength of the U.S. economy, supported by resilient consumer spending.
In an unusual move, Powell addressed the Israel-Hamas conflict and the attack on Israel as posing significant risks to global economic activity. Analysts are worried about the potential escalation of this conflict into a broader regional conflict in the oil-rich Middle East, which could have implications for oil production.
InvestingPro data shows that the Federal Reserve has a market cap of 43.93M USD, with a P/E ratio of 2.98 and an adjusted P/E ratio for LTM2023.Q2 of 15.15. The Fed has seen a revenue growth of 16.41% in LTM2023.Q2, and despite a recent slowdown in the market, it has managed to maintain a gross profit margin of 71.06%.
InvestingPro Tips suggests that the Fed is a prominent player in the bank industry, with its stockholders receiving high returns on book equity. However, the Fed has been burning through cash quickly, and total debt has increased for consecutive years. This might be a point of concern for investors. For more insights like these, InvestingPro offers additional tips.
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