“We have front-end loaded these large rate hikes and are now getting closer to where we need to be,” Fed Chairman Jerome Powell told reporters.
What happened after: Investors cheered Powell’s apparent pivot. The S&P 500 rose, marking its best month since November 2020, and financial conditions eased. Mortgage rates fell below 5% for the first time since mid-April.
Now, Fed officials are trying to set the record straight. Not wanting the markets to turn too abruptly, reversing the effects of their hard work so far, they spoke harshly again.
“We have to see really compelling evidence that inflation is going down, and my guess is that we haven’t seen that yet,” Mester said.
As the Fed tries to bring demand back down so it can stop colliding with tight supply – raising prices – it is closely watching the job market, which has remained strong.
The news poured cold water on the theory that the Fed would radically change its approach in the short term. The central bank actually wants to see some weakening in the labor market. When there are too many open roles, wages rise rapidly, which can further worsen inflation across the economy.
“This is not the news the Fed wanted to hear, and that will likely make rates rise faster,” said Robert Frick, business economist with the Navy Federal Credit Union.
Arriving: The next big data release is the Consumer Price Index, which is used to track US inflation. Economists interviewed by Refinitiv expect to learn that prices rose 8.7% in the year through July, down slightly from June. But barring the volatility of food and energy prices, inflation could have risen slightly.
The strong US dollar is hurting everyone else
The latest: the greenback rose more than 10% in 2022 against other major currencies, close to the highest level of the last two decades, as investors worried about a global recession rushed to raise dollars, which are considered a safe haven in turbulent times.
US travelers can rejoice that a night out in Rome that once cost $ 100 now costs about $ 80, but it’s a more complicated picture for multinationals and foreign governments.
The dollar gain is already hurting some vulnerable economies.
“It has been a difficult environment,” William Jackson, chief emerging market economist at Capital Economics, told me.
Monday: Earnings from BioNTech, Palantir, Tyson Foods, Novavax, News Corp., Take-Two Interactive and SmileDirectClub
Tuesday: Earnings from Dine Brands, Hyatt, Spirit Airlines, Coinbase, Roblox and Wynn Resorts
Wednesday: US Consumer Price Index for July; Earnings from Disney, Fox Corporation, Wendy’s and Bumble
Thursday: OPEC monthly report; US Producer Price Index for July; Earnings from Utz Brands, Warby Parker and Wheels Up
Friday: UK GDP; University of Michigan Consumer Sentiment Survey