Federal Reserve Chairman Jerome Powell threw markets into a tizzy on Tuesday as he spoke about the economy alongside his former boss, Carlyle Group co-founder David Rubenstein, at the Economic Club of Washington.
The discussion was filled with Powell’s insights on the economy, and investors were hanging on his every word to try and get a read on his economic outlook, attitude towards inflation and on future interest rate hikes.
Wall Street cheered as the Fed chair said the disinflationary process has begun, then soured when he said the road to reaching 2% in inflation is still “treacherous.”
Markets soared to new highs today, but quickly fell to session lows and then recovered to close the day in the green.
EY Parthenon chief economist Gregory Daco said after the conversation that Powell doesn’t want to play games with financial markets. But at the same time, he said Powell wanted to communicate that the Fed’s “base case was not for inflation to come down as quickly and painlessly as some market participants appear to expect.”
Here’s why Powell thinks bringing down prices will be more difficult than expected: he doesn’t want to spook markets by appearing to back down from the Fed’s plans, but he also doesn’t want to let inflation get out of control.
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