Speaking at a gathering following this week’s Federal Reserve rate hike, Fed char Jerome Powell delivered a stark message to traders regarding the US Fed’s forward guidance.
Key quotes
“As part of that so-called forward guidance, the Fed for years described its policy stance as “accommodative” to assure markets that it would not strangle economic growth. But on Wednesday, the Fed removed that phrase from its policy statement. Noting the U.S. economy is having a “particularly bright moment,” with unemployment expected to remain low, inflation stable, and no recession in sight, Powell said in a press conference on Wednesday that the removal of the “accommodative” wording was not a policy signal at all.
Fresh economic forecasts also released on Wednesday showed most policymakers expect the central bank to raise rates five more times before stopping some time in 2020.
But Powell, in effect, said not to put too much store in those forecasts because they could change with incoming data.
As the Fed raises rates, it will look for signals from the economy, like a slowdown in the labor market or economy, a spike in wages or inflation, or a sudden tightening of financial conditions, to cue an end to its tightening cycle, Powell said.”
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