Join now for FREE unlimited access to Reuters.com
WASHINGTON, Sept 26 (Reuters) – U.S. Federal Reserve officials on Monday put an end to rising volatility in global markets, from falling U.S. stocks to currency turmoil overseas, and said their priority remained control. domestic inflation.
When asked at a Washington Post event whether he felt U.S. investors had taken an overly optimistic view of Fed policy until the start of a recent hard sell-off, the Fed Chairman of Atlanta, Raphael Bostic, said that was not the question.
“I don’t know if they are too optimistic or not optimistic enough… The most important thing is that we have to get inflation under control,” Bostic said. “Until that happens, we’re going to see, I think, a lot of volatility in the market in all directions.” This also applies to the recent upheavals in the UK. The tax cuts proposed by the government of new British Prime Minister Liz Truss, with their potential to further stoke inflation, have raised concerns that the country’s fiscal policy will clash with the Bank of England’s efforts to control price increases with higher interest rates. Read more
Join now for FREE unlimited access to Reuters.com
The mixed signals sent the pound plummeting, adding another dose of volatility to global financial markets which are already dealing with Federal Reserve interest rate hikes that are coming faster and higher than expected.
“The reaction to the proposed plan is a real concern,” showing heightened uncertainty about the UK’s economic outlook, Bostic said. “The key question will be what it means to ultimately weaken the European economy, which is an important consideration for the performance of the US economy.”
In separate remarks to the Greater Boston Chamber of Commerce, Boston Fed Chair Susan Collins echoed the Fed’s consensus that the fight to calm the current surge in inflation was paramount.
“At the moment, inflation remains too high,” Collins said in her first policy remarks since taking over as bank helm.
Although she said she believes the pace of price increases could be at or near a peak, “getting inflation back on target will require further tightening” of credit conditions, which the Fed is influencing. through increases in its target federal funds rate.
The Fed is maintaining an inflation target of 2%, as measured by the personal consumption expenditure price index. In July, this index was increasing at an annual rate of more than 6%. August data will be released on Friday.
The U.S. central bank approved a third straight three-quarters percentage point hike last week. It has now raised its policy rate by a total of three percentage points this year, marking one of its fastest efforts ever to raise borrowing costs and slow the economy.
In recent weeks, Fed officials, in their policy comments and in their actions at Fed meetings, have been adamant that they will push rates as far as necessary to calm inflation – even at the cost of rising unemployment and a possible recession.
Some sectors of the economy have already felt the blow, with mortgages on home loans doubling to more than 6%.
In recent weeks, equity markets have reflected a broader reassessment on the possibility that US interest rates will return to levels not seen in a decade and stay there.
The S&P 500 is down 12% just in the month that Fed Chairman Jerome Powell delivered a stern message at a central bank symposium in Wyoming about the economic “pain” needed to rein in the markets. fastest price increases since the 1980s.
Fed officials have often been accused of coaxing financial markets, but have given little indication that the current sell-off will cause them to reconsider their policy plans as long as prices and wages continue to soar and the labor market will remain solid.
“The U.S. economy performs best when there’s confidence in … its short to medium-term trajectory,” Bostic said. “High inflation undermines that.”
Join now for FREE unlimited access to Reuters.com
Reporting by Howard Schneider; Editing by Paul Simao and Nick Zieminski
Our standards: The Thomson Reuters Trust Principles.