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Powell Signals Further Rate Increases Due to Sustained Inflation


"Will Powell's voiced concerns over rising inflation and the Fed's preparedness to raise interest rates, if necessary, stall incentive to begin new projects?" - William Levy, Senior Director and Founder IGRE


Federal Reserve chair Jerome Powell at the 2023 Jackson Hole economic symposium in Moran, Wyoming. Photo: David Paul Morris/Bloomberg via Getty Images

Jerome Powell, the Federal Reserve chair, expressed concerns regarding the high inflation rates during his address at the Jackson Hole Symposium. Despite signs of receding inflation, he emphasized that price pressures could reemerge and necessitate further hikes in interest rates.

At the Jackson Hole Symposium, Jerome Powell wasn't just "inflating" his speech; he voiced real concerns about rising inflation and hinted at more rate hikes on the horizon.

State of inflation: Powell highlighted that while inflation has been reduced from its highest point, it's still too high. He emphasized the Federal Reserve's readiness to implement further rate hikes if needed, stressing the aim to maintain a policy at a restrictive level until inflation shows a consistent decrease towards their targeted level of 2%.

Driving prices: Powell traced inflation's rise to pandemic-driven supply constraints, a burst of pent-up demand, and the impact of the war in Europe. While the overall inflation rate has receded from its 7% peak to 3%, the core index stands at 4.1%.

On the line: Recent economic data has been positive, revealing decreasing inflation and a robust jobs market, which came as a surprise to many experts, particularly given the aggressive rate hikes initiated over the past year. While acknowledging these positive developments, Powell outlined two scenarios for possible rate hikes:

  1. Continued above-trend economic growth, supported by the recent momentum and robust consumer spending.

  2. Persistence of the current tightness in the labor market, as evident from the high number of job openings and low unemployment benefit claims.


Why it matters: Jerome Powell's subtle cues about potential rate hikes complicate future planning for investors and developers. Such uncertainties might dampen the appeal for new projects, potentially suppressing real estate values and transaction frequency. Recall last year when Powell's remarks resulted in a 1,000-point Dow decline and a 3% drop in the S&P, cautioning US households of forthcoming "pain". This year, however, his tone aligned better with market sentiments, evoking a more favorable reaction from Wall Street.

By Jordan B. - August 28, 2023 / Originally posted on CRE Daily

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