Jerome Powell’s possible thoughts

Jerome Powell might have hinted more about interest rates more in his speech. Some experts think Powell wanted to keep his options open. Even though he might want to slow down raising rates, he did not say it too directly. The Federal Reserve is ready to keep raising interest rates up until they are sure that prices are going back to normal – around 2%. Even though prices aren’t rising as quickly as before, they are still too high. Powell also said they are ready to raise rates more if needed. But they will be careful and look at the data before making a decision.


What the market thinks

Market participants who trade in financial markets think there’s a high chance the Fed won’t raise rates at the September meeting. They also think there’s a good chance the Fed will raise rates again in November. What Powell says and what the Fed does will affect how the dollar and U.S. government bond rates change.


U.S. Treasury Yields and the Dollar’s Strength

Right now, the yield on the 10-year U.S. Treasury note is around 4.24, which is slightly lower than its 16-year high at 4.366. If the economic situation gets weaker, it could even go as low as 3.6. The Dollar Index, which shows how strong the dollar is compared to other major currencies, is currently around 104.10. When the Dollar Index goes up, it means the value of the dollar is increasing compared to other currencies. If this index stays above 104, it might move even higher to 105.9.


Why Powell will keep rates high simplified

There are three main reasons why Powell continues to support higher interest rates:

  1. Strong Economy

The economy is doing well. People are spending money, and the economy is growing. A year ago, many thought the economy would get really bad, but that didn’t happen. Now, the economy is even better than expected, so Powell might not want to make things too easy by lowering rates.


  1. Good Job Market

Lots of people have jobs, and wages are going up. The job market is strong. Last year, the unemployment rate was higher than it is now. The Fed thinks that when the job market is really tight (meaning almost everyone has a job), it can lead to higher prices. So, Powell might want to keep rates higher to prevent prices from going up too much.


  1. Rising Prices

Prices are going up, and this could continue. Prices increased by 3.2% in July, which is a bit high. This is not good for the economy. Powell might want to keep rates high to make sure prices don’t go up too quickly.


Overall the Fed remains hawkish keeping rates high to control inflation and simultaneously make sure the economy stays strong. But predicting what will really happen is tricky because a lot depends on how the economy does in the next few weeks. The Fed has said many times that their decisions are based on the data they get. But for now, it’s hard to say exactly which way things will go.


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