Fed Chairman Greenspan once said, ‘If I've made myself too clear, you must have misunderstood me’. It seems that over the past decade and a half, the Fed has become increasingly transparent in its reasoning and expectations. Therefore, there is only a small chance that the markets misinterpreted Fed Chairman Powell's speech yesterday. Speaking at the ECB conference on Tuesday, the current Fed’s chief noted that the US is back on a disinflationary path.
In addition, it is also worth considering that the Fed is targeting inflation at the long-run average. This means that it will take a long time to average out after more than three years of significant excess above the target. An important reason for rising prices is the strong labour market, which is creating jobs faster than the trend rate. As a result, wages have been rising at a rate above 4% y/y for the past three years and above the rate of inflation for the past 13 months.
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