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Fed Chair Powell: September rate hike depends on ‘totality’ of data

Yahoo Finance Live anchors discuss Fed Chair Powell’s Jackson Hole speech.

Video Transcript

BRIAN SOZZI: All right here, let's get this popping, all the market action coming after Fed Chair Jerome Powell delivered a stark message on Friday that the Fed will likely keep raising interest rates in a way that will cause some pain to the economy. Take a listen.

JEROME POWELL: Restoring price stability will likely require maintaining a restrictive policy stance for some time. The historical record cautions strongly against prematurely loosening policy.

Our decision at that September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases.

BRIAN SOZZI: Let's talk more about this with Yahoo Finance's Fed correspondent Brian Cheung. Brian, welcome back. So Powell delivering some pain, maybe not the pain that he wanted though?

BRIAN CHEUNG: Well, I mean, we saw the pain in the markets after that speech on Friday morning, right? A selloff of 3 and 1/2 percent, 4% on the NASDAQ. Obviously, markets getting the message from the Fed chair, whose remarks, by the way, were much shorter than usual. Again, these speeches at Jackson Hole tend to be bigger picture, last between 20 to 25 minutes. His speech, I think it clocked in at eight to nine minutes. It was short, sweet, to the point.

His message directly to markets essentially saying, get it in your heads. The interest rate hikes will continue until inflation comes down, even if unemployment goes up a little bit.

Now, for what it's worth, some of the reaction to the commentary from the Fed last Friday, Tim Duy over at SGH Macro saying higher for longer is essentially the way to read the speech. What's important is not necessarily where the Fed is going to stop interest rate hikes. There's nothing from that speech that tells us they're going to stop at 3.75% or 4% on the short term federal funds rate, but what it does tell us is that whenever the Fed does stop, they're going to be hanging there for some time.

And it's not going to be one or two meetings before they then start cutting interest rates. Of course, they're going to be data-dependent. But that is a big reason why you're having markets, like for example, the 10-year, repricing where they think the Fed is going to stop because they're expecting them to now hold there longer than they had expected prior to the Fed chair's remarks.

I'm looking at September Fed funds futures, 66% odds that they'll be doing the outside 75 basis point hike instead of the 50 basis point hike that markets had largely expected before Friday.

BRAD SMITH: So take us back to your trip out there as well. What were you hearing? What was the tenor from some of the other committee members who also were tuning in to a very much shortened speech, yes, but also one that didn't mince words on this occasion from Fed Chair Jay Powell?

BRIAN CHEUNG: No, not all. And again, I was just talking about the length of the speech itself. What's also interesting is that the number of Fed officials that were speaking to the media, including to Yahoo Finance, much thinner than it was in previous Jackson Hole meetings. So preceding the speech from Jay Powell already, it could have been definitely the case that from the top, the Fed board was just saying, hey, let's try to make sure that the focus is on Jay Powell's speech as opposed to kind of flood the kind of commentary around him with other Fed officials speaking as well.

Now, of course, that doesn't mean, we didn't talk to anybody. We had Esther George from the Kansas City Fed as well as Cleveland Fed President Loretta Mester all saying essentially the same thing. The Federal Reserve is going to be resolute in making sure that they can get inflation down.

The general feel around the meeting at Jackson Hole as well had an international presence as well when you consider that there were representatives there from the Bank of Japan, from the European Central Bank, from the Bank of Canada, as well. All of those policymakers were present in the room when Fed Chair Jay Powell delivered these remarks. And that's really important to remember here as well because when we talk about a rising US dollar, whatever the Fed is doing, all the other central banks are paying attention as well.

Does what Jay Powell say make the ECB more aggressive? Could they go with a 75 basis point hike in their meeting as opposed to 50 basis points as well? What's the Bank of England going to do? This has ripple effects beyond Jackson Hole, beyond even the United States. And I think that's what people need to remember about the Jackson Hole meeting as well.

BRIAN SOZZI: Was there any chatter on recession? Because I would argue recession chatter has fallen by the wayside when I've been on the Street.

BRIAN CHEUNG: Well, you noticed that Jay Powell speech didn't actually mention the word recession. Now, what he did warn however, is that the Fed is expecting almost the unemployment rate to go up. Now, 3.5% unemployment is back to over 50-year lows. So maybe it would be natural that you might not be able to get that much lower than that. It's not like people are calling for a 1% unemployment rate based off of where we're at right now.

But you had Loretta Mester, for example, on our programming on Yahoo say, look, I would expect to see the unemployment rate go up to even 4%, maybe even past that. And when I spoke with Alan Blinder, former Fed vice chair, he was saying that you almost have to get the unemployment rate to 4.5% in order to take down inflation.

Now, for what it's worth, that would be way less bad than the high unemployment that we had seen out of the financial crisis. But even going from 3.5% to 4.5%, that's still millions out of work. So that's the pain that Jay Powell was talking about, even though he didn't use the R-word, recession.

BRIAN SOZZI: I think I saw a tweet of you Brian holding one of those fake cherries. I thought you were a clean eater.

BRIAN CHEUNG: Hey, I was at the cowboy bar. Have you ever gone to the cowboy bar? It's in town in the town of Jackson. It's cowboy-themed. I was there wearing my Fred shirt. But apparently cowboys, they're not really about that economic thing.

BRIAN SOZZI: So no clean eating on this case?

BRIAN CHEUNG: Not clean eating on this case.

BRIAN SOZZI: Just wanted to make sure.

BRAD SMITH: You've got to bring your bolo tie next time.

BRIAN CHEUNG: I don't know if I could pull that off, though.

BRAD SMITH: You got to. You can pull anything off.

BRIAN CHEUNG: I'll try. I'll just.

BRAD SMITH: Even Travis Scott's in Jackson Hole, Wyoming, which you did. We know it. We saw it. Brian Cheung, thank you for joining us here this morning to break down all--