US Federal Reserve Chairman Jerome Powell left little doubt that he is prepared to push rates as high as needed to stamp out inflation, even as the central bank eyes a downshift to a slower pace of increases.
Addressing reporters on Wednesday after the Fed raised rates by 75 basis points for the fourth time in a row, Powell said: “Incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.”
The move lifts the Fed’s benchmark to a range of 3.75 percent to 4 percent, from nearly zero in March. Even so, the US economy has shown remarkable resilience, as rising borrowing costs have slowed the housing market, and the inflation rate is stubbornly stuck near 40-year highs.
Photo: EPA-EFE
“We think that we have a ways to go, we have some ground to cover with interest rates before we get to that level of interest rates that we think is sufficiently restrictive,” Powell said, an indication to investors that the tightening campaign is not over.
“It is very premature to be thinking about pausing,” he said, while also adding that it could be appropriate to slow the pace of increases “as soon as the next meeting or the one after that.”
US stocks on Wednesday reversed initial gains, with the S&P 500 experiencing its worst rout on a Fed decision day since January last year as investors digested the message.
Asian markets sank yesterday, with Hong Kong leading the losses as its central bank hiked rates in line with the Fed. Taipei, Shanghai, Sydney, Seoul, Wellington, Mumbai, Bangkok and Manila were also well in the red. Tokyo was closed for a holiday.
Powell’s challenge was to signal a shift to a slower pace of hikes without communicating that the Fed was close to done with the tightening campaign. He accomplished that by declaring rates would peak higher than officials expected in September, even as they slow the pace of their increases as they get closer to that destination.
His remarks shift the focus from the size of the next rate hike to where they might peak and how long they should stay at those levels.
“That was the single most important thing that came out of this entire meeting,” said Erik Weisman, chief economist and portfolio manager at MFS Investment Management in Boston. “I don’t need to know anything else.”
The term “sufficiently restrictive” was new language in the US Federal Open Market Committee’s statement. It was balanced by saying the pace of future increases “will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
The committee’s vote was unanimous, and some economists said the statement read like a compromise to prevent dissent.
However, Powell was careful to spell out that this did not represent any retreat in the war on inflation, adding that the risks of doing too little are higher than too much.
“I would want people to understand our commitment to getting this done and to not making the mistake of not doing enough or the mistake of withdrawing our strong policy and doing that too soon,” he told reporters.
Unemployment at 3.5 percent is matching a five-decade low. Job openings, which Powell watches closely, unexpectedly rebounded in September, with the ratio of available positions for every unemployed person now at 1.9.
He called the labor market out of balance, and expressed disappointment at the persistence of high inflation even though some prices have begun to decelerate.
The Fed’s latest rate hike comes just days before the US midterm congressional elections on Tuesday, and amid rising criticism from Democrats who are worried that higher borrowing costs could push up unemployment.
Powell said that low inflation was better in the long run for all Americans, even if the short-term cost was high.
However, he said that the path to a soft economic landing is getting narrower, because robust demand and stubbornly high inflation have not moved much in response to higher rates.
“There is a lot of pressure on Powell to stop and pause, and wait for the lags,” said Veronique de Rugy, an economist at the Mercatus Center at George Mason University in Arlington, Virginia.
“I don’t think there was ever going to be another option other than creating a recession. There is no way to get out of this high inflation without extreme pain,” she said.
SEMICONDUCTORS: The German laser and plasma generator company will expand its local services as its specialized offerings support Taiwan’s semiconductor industries Trumpf SE + Co KG, a global leader in supplying laser technology and plasma generators used in chip production, is expanding its investments in Taiwan in an effort to deeply integrate into the global semiconductor supply chain in the pursuit of growth. The company, headquartered in Ditzingen, Germany, has invested significantly in a newly inaugurated regional technical center for plasma generators in Taoyuan, its latest expansion in Taiwan after being engaged in various industries for more than 25 years. The center, the first of its kind Trumpf built outside Germany, aims to serve customers from Taiwan, Japan, Southeast Asia and South Korea,
Gasoline and diesel prices at domestic fuel stations are to fall NT$0.2 per liter this week, down for a second consecutive week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) announced yesterday. Effective today, gasoline prices at CPC and Formosa stations are to drop to NT$26.4, NT$27.9 and NT$29.9 per liter for 92, 95 and 98-octane unleaded gasoline respectively, the companies said in separate statements. The price of premium diesel is to fall to NT$24.8 per liter at CPC stations and NT$24.6 at Formosa pumps, they said. The price adjustments came even as international crude oil prices rose last week, as traders
SIZE MATTERS: TSMC started phasing out 8-inch wafer production last year, while Samsung is more aggressively retiring 8-inch capacity, TrendForce said Chipmakers are expected to raise prices of 8-inch wafers by up to 20 percent this year on concern over supply constraints as major contract chipmakers Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and Samsung Electronics Co gradually retire less advanced wafer capacity, TrendForce Corp (集邦科技) said yesterday. It is the first significant across-the-board price hike since a global semiconductor correction in 2023, the Taipei-based market researcher said in a report. Global 8-inch wafer capacity slid 0.3 percent year-on-year last year, although 8-inch wafer prices still hovered at relatively stable levels throughout the year, TrendForce said. The downward trend is expected to continue this year,
POWERING UP: PSUs for AI servers made up about 50% of Delta’s total server PSU revenue during the first three quarters of last year, the company said Power supply and electronic components maker Delta Electronics Inc (台達電) reported record-high revenue of NT$161.61 billion (US$5.11 billion) for last quarter and said it remains positive about this quarter. Last quarter’s figure was up 7.6 percent from the previous quarter and 41.51 percent higher than a year earlier, and largely in line with Yuanta Securities Investment Consulting Co’s (元大投顧) forecast of NT$160 billion. Delta’s annual revenue last year rose 31.76 percent year-on-year to NT$554.89 billion, also a record high for the company. Its strong performance reflected continued demand for high-performance power solutions and advanced liquid-cooling products used in artificial intelligence (AI) data centers,
RSS