In the last official statement by a Fed member before the silence that precedes every interest rate announcement, Fed Chairman G. Powell left for the first time in a long time and without reservation, the impression that the era of sharp interest rate hikes is coming to an end, and the final stop is also in sight. Powell also addressed the day after and the question How long will the interest rate stay at its final level, another evidence that the increases are about to end. And these are the reasons why Powell’s words are important?
1. The Fed has so far tried to say things that would not cause the capital markets to jump and therefore made sure to emphasize that inflation is still high and that the next interest rate hikes may also be sharp. In this sense, the Fed has left the capital markets quite confused and therefore also volatile. Yesterday, Powell knew that the words he would say would jump the market and in particular the NASDAQ index, which is more sensitive than others to the level of interest. .
2. The words were said after it was published that in the third quarter of the year the GDP in the US surprised upwards when it grew by 2.9% and indicated a strengthening compared to the previous quarter. The Fed’s monthly periodic review (the beige book) which is more recent and published yesterday also indicated continued growth. These data distance the recession scenario from the US economy and the possibility that at the end of the day a ‘soft landing’ will be achieved naturally encourages the market. If Powell openly talks about the recession of interest rate increases after a relatively strong growth figure, this signals to the market that his desire to see a curbing of demand in The US has depreciated and that the interest rate hikes that have been up until now are doing the job in the price arena.
3. Yesterday, data was published that indicated a weakening of the labor market in the US. Also, on Friday (tomorrow) the employment figure for the month of November will be published, an important figure that has a strong impact on the market. Powell is probably satisfied that the labor market is easing a bit and is no longer so tight, so that the salary increases derived from it may also moderate and pull down inflation. His rather convincing statement regarding the possibility that the interest rate will slow already this month, two days before the employment report, shows his confidence in the success of the process.
4. Powell emphasized that the rate of interest rate increases is much less important than the final stop. This is important because he understands that it will take some time for the lagged effects of the already rapid and sharp increases to affect inflation. Another reason why to sit on the fence for quite some time and wait for the results in the field…
5. According to, most when we say that there is a possibility of the interest rate slowing down – it will indeed slow down, if by the time of the decision (the middle of the month) there will not be too many negative events. The market has fallen significantly this year and the things Powell said yesterday can certainly be in themselves a trigger for optimism.
**The writer is chief market economist of Bank Mizrahi Tefahot**