Fed Chairman Jerome Powell delivered a speech on 11/30/2022. Markets reacted favorably to this comments. Nasdaq index was up 4.4% and closed at 11468. Tesla finished strong, up 7.67% to close at 194.7 on elevated volume of 109,186,400 shares. Here are the key takeaways from that speech.
Key take away is he sees inflation correcting and he plans to moderate the pace of rate increases as soon as December meeting. He still needs to increase interest rates and uncertain how long needs to raise rates. He based the conclusion on the following:
- Inflation remains high and price stability is key to a stable economy
- Personal Consumption Expenditures Inflation (PCE) currently estimated at 6.0 through October. It was lowered than previously predicted but this is still just one month of data he needs more data to confirm inflation is declining.
- GDP last year very strong at 5.7% due to economy reopening after COVID eased. The 3 quarters year to date GDP flat growth due to Russia war agains Ukraine, fed tightening. He needs GDP to remain in slow growth for sustained period.
- Core inflation consists of core goods, housing service, and core services other than housing
- During pandemic, supply chain issue combined with high demand result to prices going up. Supply chain has improved and fuel, and non fuel prices falling. Core goods inflation at 4.6% and down from 3% from start of the year. This is trending down and helps reduce overall inflation.
- Housing services, rents and rental equivalent cost for owner occupied housing still rising and is at 7.1% over last 12 months. Rental leases turnover much slower and inflation changes lag other price indicators. New lease inflation is falling from previous high of nearly 20% during pandemic. He expects housing service inflation to begin to fall next year.
- Core services other than housing component of inflation constitutes more than 50% of core PCE index. Examples include health care, education and hospitality. Cost in this area is dominated by labor cost. Demand for workers exceed available workers. Wage increase is above the desired 2% inflation. Unemployment rate is 3.7% a 50 year low. Job openings exceed workers by 4 million or 1.7 jobs per person looking for work.
Reference:
https://www.federalreserve.gov/newsevents/speech/powell20221130a.htm