The local currency declined 0.6 percent to US68.51¢ and was on track for a 2 percent drop this month. The US dollar index, which measures the greenback against a basket of major currencies, rose to a new 20-year high of 109.39 on Monday and held off the Australian dollar.
Powell was speaking at the annual meeting of policymakers hosted by the Kansas City Fed in Jackson Hole, Wyoming. This year’s theme was how the COVID-19 pandemic imposed new restrictions on the global economy.
Inflation is the main concern of politicians and the Fed chief warned that investors should not expect the central bank to cut interest rates until inflation is brought under control.
“Powell’s comments at Jackson Hole were aggressive, as he invoked former President Paul Volcker to advocate against premature policy easing in response to weaker growth,” Kenny said.
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Powell said: “While higher interest rates, slower growth and softer labor market conditions will reduce inflation, they will also bring some pain to households and businesses.” Restoring price stability “will take some time,” warning that “failing to restore price stability would mean much greater pain.”
The two-year US Treasury yield, which reflects interest rate expectations, rose as much as 3.47 percent on Monday, the highest in 15 years.
Rising short-term interest rates further inverted the yield curve, which is considered a reliable indicator of a recession. The gap between two-year and 10-year Treasury yields widened to minus 36 basis points, from minus 31 basis points before the Fed chair’s speech.
The yield on the 10-year Treasury note added 8 basis points to 3.11 percent.
Powell gave no indication of how much interest rates might rise before the Fed is done, only that they will rise as much as needed as he seeks to bring inflation down to his 2 percent target. Another “unusually large” increase in the fed funds rate may be appropriate.
Bond investors have been shedding a 0.5 to 0.75 percentage point gain in the current 2.25 to 2.5 percent range of the Federal Reserve fund at the June 20-21 monetary policy meeting. September.
They raised the odds in favor of 0.75 percentage points, implying a 70 per cent chance, up from 58 per cent at the end of last week, of such an outcome in the September decider.
Elliot Clarke, senior economist at Westpac, expects a 0.5 percentage point increase in September, assuming nonfarm payroll growth slows, and the August CPI result is “benign.”
“Even if both outcomes are as expected and the FOMC goes up 50 basis points in September, a 50 basis point move in November will still be a significant risk.”
Clarke said cuts are unlikely before the end of 2023. US employment and inflation data for August will be released ahead of the Fed’s monetary policy meeting in September.
the europeans cry
Meanwhile, the Bank of England, the Swiss National Bank, the Bank of Japan, the Bank of Korea and several European Central Bank policymakers reiterated over the weekend a stern and unified message that inflation is here to stay and It will take strong action to stop it.
The Reserve Bank of Australia, along with the ECB and the Bank of Canada, will hold their policy meeting next week. The cash rate is expected to rise for the fifth consecutive policy meeting on September 6.
Bond futures indicate a 50-50 chance of a 0.5 percentage point hike in September to take the cash rate to 2.35 percent. They now expect the cash rate to peak at 4.03 percent by July 2023; the last time futures implied such a high terminal rate was in June.
Australia’s three-year bond yield jumped to its highest level in two months at 3.46 percent after data from the Australian Bureau of Statistics showed seasonally adjusted retail sales beat forecasts for a rise. just 0.3 percent.
“Not only did retail sales rise for the seventh consecutive month in July, but the sheer size of the increase strongly suggests that the Reserve Bank of Australia will raise rates another 50 basis points next month,” said Marcel Thieliant, senior economist at Capital. Economic Sciences.
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