Federal Reserve Chairman Jerome Powell has recently given a scathing statement for the financial industry. Mr. Powell said that the industry should pay more attention to data regarding wages, jobs, and inflation in order to have an idea on what monetary policy are to be adopted rather than take the United States central bank's forecasts.
This latest statement is a big leap from what the Federal Reserve's stance is for many decades. In the past, the Federal Reserve had made sure that it can control the financial market to follow its policies in order to mitigate, if not cancel out, the negative effects of the financial crisis.
This so-called forward guidance allowed the Federal Reserve to be more accommodating in order to assure the financial market that the institution will not hamper the country's improving economic growth.
Many observers have noted that the Federal Reserve has finally changed its stance towards policy statement. While this decision was widely criticized by many, especially those in the financial sector, various regulatory bodies have lauded the institution's decision.
Regarding its recent change of heart, some investors have interpreted this as a major sign that the central bank is seriously considering to end the interest hike cycle which was imposed way back in December 2015. According to J.P. Morgan chief economist in the United States Michael Feroli, this possibility could be a "stretch."
Mr. Powell said that the removal of what many perceive as an "accommodative" stance should not be interpreted as a policy signal. Especially when recent data are to be considered. He said that the economy of the United States is currently enjoying major growth. He added that the latest statistics reveal that unemployment remains relatively low, inflation is under control, and the recession is totally out of the picture.
Mr. Powell Said that the main concern of the Federal Reserve is how to provide just the right amount of support for the economy to continue its growth. He added that the main focus is to sustain all recovery efforts which will eventually help in achieving the institution's statutory goals. Among these goals are to reduce inflation to just 2 percent and to fully eradicate unemployment.
On Wednesday, the Federal Reserve announced that a rate increase. Something that the industry has long been waiting for. This will bring the institution's target range with regards to its benchmark overnight lending rate to somewhere between 2 percent and 2.25 percent.
Based on some of the latest economic forecasts which were also released on Wednesday, many policymakers are expecting the central bank to raise current rates by at least five more times. The forecast also expected that rate hike will eventually stop by 2020.
