Powell Suggests Federal Reserve Interest Rate Rise Easing in December

Powell’s remarks during his keynote speech are a move away from his typical hawkish stance on controlling high inflation with accelerated rate rises.

Federal Reserve Chairman Jerome Powell has signaled that there could be an easing of the pace of interest rate rises, which may begin as early as this month.

In a speech to the Brookings Institution, Powell said that there could be smaller rate increases, as the recent rate rises have yet to filter through the economy.

This is despite his view that there is still a long way to go to tame inflation and restore price stability.

The Federal Reserve has increased rates by 0.75% on four consecutive occasions, after the November meeting of the Federal Open Market Committee the cost of borrowing reached 4%.

The next rate decision will be made on 14 December.

Powell’s remarks during his keynote speech are a move away from his typical hawkish stance on controlling high inflation with accelerated rate rises.

The CME FedWatch Tool was previously split between a 0.50% rise in rates or another 0.75% rise this month, but now just under 82% of market respondents anticipate the more moderate rate increase.

Following the speech, the stock market reaction has been predictably positive, with the S&P 500 closing with an increase at just over 3% with a value of 4080.11.

While the Nasdaq 100 rose further jumping up by 4.58%.

GDP Increases by 2.9%

The latest revised data released by the Bureau of Economic Analysis revealed that GDP in the United States has increased by an annual rate of 2.9% for the third quarter, further staving off recession fears.

Originally the advanced estimate said that the economy had grown by 2.6%.

The latest scorecard for the United States economy will be welcomed by many analysts, as the consensus was that there would be a 2.7% rise.

Overall the news is an about turn, as in the previous two quarters the Unites States’ economy contracted by 0.6% and 1.6% respectively.

Exports were one of the main drivers of the increased economic activity, with industrial supplies, materials, travel, and business services mainly from the finance sector the leading performers.

Consumer spending on health care and “other” services also spearheaded the GDP rise, but this was partly offset by a fall in outlays on goods, in particular motor vehicles and food and beverages.

State and local government spending also increased through defense spending and compensation for state employees.

Employment Figures Good News for The Fed

Data on the employment market has revealed a slowing in job creation and a decline in vacancies that will be appreciated by the Federal Reserve, whose rate-raising policy has been designed to cool a tight labor market.

The latest ADP National Employment Report showed that 127,000 jobs were created in November, the slowest rise in new jobs since January last year.

Interest rate-sensitive sectors such as manufacturing and construction saw the number of jobs generated fall by 100,000 and 2,000 respectively.

Nela Richardson, a chief economist of the ADP, said that the Federal Reserve tightening is now having a negative effect on job creation and pay gains.

“In addition, companies are no longer in hyper-replacement mode. Fewer people are quitting and the post-pandemic recovery is stabilizing.” She added.

While the Bureau of Labor Statistics confirmed that there had been a decline in vacancies in October, falling by 353,000 positions down to 10.3  million.

Job openings decreased mostly in state and local government sectors excluding education by 101,000, there were further sizeable job falls in nondurable goods manufacturing by 95,000 and in the federal government by 61,000 positions.

Yet there was an increase in vacancies in the other services by 76,000, and in the finance and insurance market by 70,000.

Overall the number of those being hired and those who quit or were laid off changed little as 6 million and 5.7 million respectively.

Dollar Falls

The Dollar has reacted negatively so far to the batch of data that was released, and the Jerome Powell speech.

The greenback fell against its main currency rivals the UK Pound, the Euro and the Japanese Yen, which saw the biggest drop by 0.57%, with a Dollar now buying Y136.4.

Peter Taberner
Peter has been a UK-based freelance journalist for over 15 years, and has written for several financial publications including Funds Europe, Trade Finance Magazine, International Finance Magazine.

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