Fed Chair Emphasizes Inflation Control, Hints at Continued Rate Hikes

At the highly anticipated global central bank annual meeting, the Fed chairman delivered a brief yet powerful speech, reiterating the determination to control inflation. He stated that the Fed's top priority is to bring the inflation rate down to the target level of 2% and will firmly use various tools to achieve supply-demand balance, thereby reducing inflationary pressures.

The chairman pointed out that although the inflation data in July showed some improvement, this is not enough to change the Fed's interest rate hike path. He emphasized that the Fed will not be swayed by one or two months of data, and the current inflation situation remains severe. Although the U.S. economy has slowed from last year's high growth rate, it still shows strong underlying momentum, especially as the labor market remains unusually tight.

Regarding the future trend of interest rates, the Chairman stated that the magnitude of the rate hike in September will depend on the overall economic data and the changing outlook at that time. He hinted that there may be another significant rate increase. Furthermore, he also warned that continued rate hikes could bring some "pain" to the economy, but this is a necessary cost to reduce inflation.

The chairman emphasized that even after reaching a restrictive interest rate level for economic growth, the Fed would not rush to cut rates. He stated that historical experience strongly warns against prematurely loosening policies. Lowering inflation may require maintaining a restrictive monetary policy for a period of time and could lead to economic growth below trend levels, with some softness possibly appearing in the labor market.

In the second half of the speech, the chairman emphasized the importance of managing inflation expectations. He pointed out that controlling inflation expectations is crucial to avoid repeating the historical experience of significant interest rate hikes leading to economic recession. He warned that the longer high inflation persists, the more likely the public's expectations of continued inflation rise will become entrenched.

Nevertheless, the chairman also mentioned that at some point in the future, as the monetary policy stance tightens further, it may become appropriate to slow down the pace of interest rate hikes. However, this statement did not calm market sentiment.

After the speech, the financial markets reacted strongly. The stock market generally fell, bond yields rose, the dollar index strengthened, and gold prices dropped. Expectations in the futures market for a 75 basis point rate hike in September also significantly increased. These market reactions indicate that investors are digesting the prospect of the Fed potentially continuing to take a tough stance.