“We’ve loaded these very large rate hikes and now we’re getting closer to where we need to be,” Fed Chairman Jerome Powell told reporters.
What came next: Investors cheered Powell’s apparent pivot. The S&P 500 rose, hitting its best month since November 2020, and economic conditions eased. Mortgage rates fell below 5% for the first time since mid-April.
Now Fed officials are trying to set the record straight. They haven̵[ads1]7;t wanted the markets to change course too sharply, reversing the effects of their hard work so far, and they’ve talked tough again.
“We need to see really compelling evidence that inflation is moving down, and my view is that we haven’t seen that yet,” Mester said.
As the Fed tries to bring demand back down so it stops facing limited supply — pushing prices up — it is closely watching the labor market, which has remained strong.
The news poured cold water on the theory that the Fed would change its approach dramatically anytime soon. The central bank actually wants to see some weakening in the labor market. When there are too many open roles, wages rise quickly, which can make economy-wide inflation worse.
“This is not the news the Fed wanted to hear, and this is likely to cause it to push interest rates higher, faster,” said Robert Frick, corporate economist at Navy Federal Credit Union.
Coming up: The next major data release is the Consumer Price Index, which is used to track US inflation. Economists polled by Refinitiv expect to find that prices rose 8.7% in the year to July, down slightly from June. But excluding volatile food and energy prices, inflation may have increased.
America’s strong dollar hurts everyone else
The latest: The dollar is up more than 10% in 2022 against other top currencies – near a two-decade high – as investors worried about a global recession have rushed to the greenback, considered a safe haven in turbulent times .
American travelers may rejoice that a night out in Rome that once cost $100 now costs around $80, but it’s a more complicated picture for multinationals and foreign governments.
The dollar’s gains are already hurting some vulnerable economies.
“It’s been a challenging environment,” said William Jackson, chief emerging markets economist at Capital Economics.
Monday: Revenue from BioNTech, Palantir, Tyson Foods, Novavax, News Corp., Take-Two Interactive and SmileDirectClub
Tuesday: Earnings from Dine Brands, Hyatt, Spirit Airlines, Coinbase, Roblox and Wynn Resorts
Wednesday: US Consumer Price Index for July; Revenue from Disney, Fox Corporation, Wendy’s and Bumble
Thursday: OPEC Monthly Report; US producer price index for July; Revenue from Utz Brands, Warby Parker and Wheels Up
Friday: UK GDP; University of Michigan Consumer Sentiment Survey