Fed Chair Powell Delivers Hawkish Speech at Jackson Hole


Fed Chair Powell's delivery at Jackson Hole had a hawkishness to it. He said that "although inflation has moved down from its peak…it remains too high." This comes after the Fed's 11 rate hikes since the beginning of 2022, which has the target range currently at 5.25%-5.5%. At face value, this seems restrictive, however labour markets are still tight, and GDP is still growing at a fair pace.

This is at odds with Fed Chair Powell's delivery. He stated that "getting inflation back down to 2 percent [requires] below-trend economic growth as well as some softening in labour market conditions." This seems to suggest that more restriction might be needed if policy lag is not to blame, especially given that he reiterated that 2% remains the Federal Reserve's inflation target.

The Chair said that "additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy."

In response, the US 2-year yield, a gauge for Federal Reserve monetary policy, jumped to levels near 5.1%. This influenced the greenback and FXCM's USDOLLAR basket moved up in a positively correlated response (red arrows):

Source: www.tradingview.com

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Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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