Powell Highlights Progress on Inflation; Reiterates the Job is Not Yet Finished

The Gist

In his latest speech on Thursday, Federal Reserve Chair Jerome Powell reiterated that the economy is in a good place, the labor market remains strong, and that inflation remains on a downward path, albeit the road to its 2% target may prove bumpy along the way.

The Color

GDP

Powell highlighted the US economy's strength since the pandemic, especially compared to the rest of the developed world; activity in the housing sector proving the drag on the economy.

Labor Market

Chair Powell remains confident the labor market remains in solid condition, having cooled from the significantly overheated conditions two years ago. He also states that by many metrics, it is at levels consistent with the Fed's employment mandate.

Inflation

He reminded market participants that core measures of goods and services inflation, excluding housing, have rapidly fallen over the past two years and are now consistent with the Fed's inflation target. Housing is the element of inflation that must still return to more normal levels.

The Takeaways

Chair Powell's speech reaffirms that while the battle against inflation shows signs of progress, the Federal Reserve remains wary of declaring victory too soon. After the speech, investors began to question the viability of a 25bp cut in the Fed Funds Rate in December more seriously.

Read the full speech here.

Watch the full speech and the Q&A here.