In his first speech at the Federal Reserve’s annual conference at Jackson Hole, Fed Chairman Powell reaffirmed that only economic developments are decisive for the Fed’s interest rate policy decisions. In his keynote speech he defended the Fed’s gradual monetary strategy. But it was also intended as a subtle response to US President Trump’s criticism that the monetary reins were being tightened too aggressively.
Powell set out the general strategy being pursued by the Fed in its current cycle of interest rate hikes. He explained that the Fed’s monetary alignment is based both on theoretical models as well as on the actual development of economic variables. In view of the current solid economic development, a robust labour market and an inflation rate of around 2%, the central bank can be expected to continue its gradual series of rate hikes. At the same time, he confirmed market expectations that the Fed will raise key interest rates again by 25 basis points in September.
Summing up, Powell’s message was that the Fed will raise interest rates moderately in the coming months. In addition to econometric models, in future too, the current data publications in particular will determine the Fed’s monetary orientation. Powell makes it clear that as long as inflation remains low, there will be no signs of an overheating economy. Moreover, as long as inflation expectations remain moderate, there will not be any need to step up the pace of rate hikes.