Jerome Powell's Speech at Economic Club of New York Indicated Fed May Not Be Done

Jerome Powell gave an interesting speech in front of the Economic Club of New York earlier today.

I think that there are at least three main takeaways from this speech that depositors need to consider.

First, the Fed may not be done raising interest rates. The economy is still burning too hot and Powell is still not convinced that he has interest rates under control. Since he feels that the economy has been able to handle higher rates, he will not hesitate to raise rates well above the current 5.25 to 5.50% target. Conventional wisdom that the Fed is done or very near done with raising interest rates could be wrong.

Second, the Fed still has a 2% inflation target but that does not mean that long-term interest rates are going to go back to 2%. Powell does not seem alarmed that the 10-year or 30-year Treasury rates have moved much higher and he is not going to try to manage the long end of the curve in order to keep the cost of capital low for issuers or mortgage borrowers. He believes we are not going back to a disinflationary period, but one where investors will demand a risk premium for lending. (In the 19th to 23rd minutes of the speech, he gives some other possibilities why longer run bonds are moving higher).

Third, Powell says that the state of the banking system is very strong. He believes that banks, in general, have very strong balance sheets and the failures of Silicon Valley Bank and Republic Bank were not harbingers of an imminent banking crisis in late 2023 or 2024. (This is after the 34th minute).

Among all of Powell's speeches, this was his most candid. He also gave the most insight into all of the factors that the Fed considers in interest rate policy. Those interested in Fed policy may find it worthwhile to watch the entire speech below.