According to Fed Chair Jerome Powell, the central bank will not base its policy decisions on the lagged effects of housing costs on inflation metrics.
“I think that shelter inflation is going to remain high for some time. We’re looking for it to come down, but it’s not exactly clear when that will happen. It may take some time. Hope for the best, plan for the worst,” Powell said.
In recent months, housing costs, particularly rent, have emerged as a major contributor to inflation as the price of oil and other commodities declines. Rent increases are reflected with a lag in the official inflation data due to the way the metric is calculated.
Investors should prepare for future increases of 75 basis points in interest rates as the Federal Reserve vows to do so in order to curb inflation, according to analysts.
According to projections from the central bank meeting, participants anticipate raising rates in each of the next two meetings by at least 1.25 percentage points.
In the press conference held on Wednesday after the two-day policy meeting, Fed Chair Jerome Powell stated that the inflation rate hasn’t decreased as much as the central bank had hoped it would by this point.
“Our expectation has been we would begin to see inflation come down, largely because of supply side healing,” he said. “We haven’t. We have seen some supply side healing but inflation has not really come down.”
He said that core PCE inflation, “on a 3- 6- and 12-month trailing annualized basis,” is now at 4.8%, 4.5%, and 4.8%, respectively which is a pretty good summary of where the country is in inflation and that’s not where they wanted it to be.
The Federal Reserve has always been aware that managing a soft landing while raising interest rates high enough to control high inflation may be challenging.
Feds argue that no one can predict whether this process will cause a recession or, if it does, how severe it will be. That will depend on how quickly pressures on wage and price inflation subside, whether expectations stay anchored and whether there will be an increase in the labor supply.
The chances of a soft landing will decrease, he continued, if the Fed needs to tighten policy in order to achieve its target inflation rate of 2%. However, he noted that long-term suffering would be increased by high inflation.
Will Fed Achieve Jackson Hole’s 2% Commitment?
Jerome Powell, the head of the Federal Reserve, stated on Wednesday that his opinions haven’t changed since he gave his market-shaking speech from Jackson Hole a month ago.
Since Jackson Hole, “my main message has not changed,” Powell declared. The FOMC is adamant about getting inflation to 2%, and we won’t stop working until we succeed.”
He continued, citing a slight decline in job openings, the fact that quit rates are down from all-time highs, and the fact that payroll gains have moderated, albeit barely, as evidence that the labor market is cooling off.
The Fed’s rate must be lowered to a “restrictive level” and maintained there “for some time” by the central bank. It will be looking for three things in order to achieve that: a continuation of growth that is running below trend, changes in the labor market that demonstrates a return to a better balance between supply and demand, and “clear evidence” that inflation is returning to the target level of 2%.
Stock’s Positive Reactions
As Jerome Powell, the chairman of the Federal Reserve promised to raise rates to reduce inflation, stocks increased.
For the third time in a row, the central bank increased interest rates by 75 basis points. The major averages initially declined, but they soon recovered as Powell reiterated his firm stance against inflation during the question-and-answer session.
More than 100 points were added to the Dow Jones Industrial Average. Around 3:04 PM ET, the S&P 500 rose 0.6% while the Nasdaq rose 0.9%.
Today’s Expected Stocks Earnings
In other news, investors are eyeing major earnings reports before the market closes. Here is what to look out for even as stocks rebound after the Fed statement.
On Thursday, September 22, Costco is expected to announce its earnings report prior to the market opening. Analysts’ consensus EPS forecast that Costco will earn $4.11 on every share compared to the prior quarter’s earnings of $3.90 per share.
On Thursday, September 22, before the market closes, FedEx is expected to announce its earnings report. Analysts’ consensus EPS forecast that FedEx will generate $23.58 billion in revenue and earn $3.43 per share. This contrasts with the prior-year quarter’s $4.37 per share earnings on $21.93 billion in revenue.
On Thursday, September 22, before the market opens, Accenture is anticipated to release its earnings report. Analysts anticipate Accenture to generate $15.4 billion in revenue and earn $2.57 per share. This contrasts with the prior-year quarter’s $2.2 per share earnings on $11.9 billion in revenue.
FactSet Research Systems Inc. (FDS)
Before the market opens on September 22, 2022, FactSet is anticipated to report earnings. The report will cover the accounting quarter that ends in August 2022. According to analysts, the consensus EPS forecast for the quarter is $3.25 based on projections from 7 analysts. For the same quarter a year ago, the reported EPS was $2.88.
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