Fed's Powell: I feel very good about where monetary policy is

Ladies and gentlemen, it is a great pleasure to be here and address such a distinguished audience of financial market experts. As seasoned market observers, you are undoubtedly accustomed to the ups and downs of financial markets. In the early autumn of 2023, financial markets were expecting that the Eurosystem would reduce its monetary policy rate by approximately 60 basis points throughout 2024. Just three months later, progress in central banks’ efforts to tame inflation, together with a weakening real economy, led markets to believe that central banks would significantly accelerate their rate-cutting cycle, with a cumulative reduction of 160 basis points reckoned to be likely. However, in the first half of 2024, inflation proved to be more persistent than anticipated. And the real economy, including the labour market, showed renewed signs of resilience. Consequently, expectations for rate cuts in the euro area for 2024 decreased steadily to approximately 65 basis points by June 2024. Subsequently, the pendulum swung back again as we saw the inflation rate coming in several times lower than expected and the economy slowing down. Following the three 25-basis-point cuts already implemented in June, September and October, markets currently expect the overnight money market rate to stand approximately 100 basis points lower throughout 2024. What accounts for these significant fluctuations in market expectations? The Eurosystem can clo post: ECB’s Nagel Favours Gradual, Cautious Approach To Rate Cuts - Has No Objection Now To Cutting Rates Next Week, But Is Reserving Judgement Until The Meeting post: ECB'S NAGEL SAYS NO SIGNIFICANT RECOVERY EXPECTED IN GERMANY IN THE SHORT TERM post: NAGEL OF ECB: NO SIGNIFICANT RISK OF INFLATION UNDERSHOOTING

Economic activity rose slightly in most Districts. Three regions exhibited modest or moderate growth that offset flat or slightly declining activity in two others. Though growth in economic activity was generally small, expectations for growth rose moderately across most geographies and sectors. Business contacts expressed optimism that demand will rise in coming months. Consumer spending was generally stable. Many consumer-oriented businesses across Districts noted further increases in price sensitivity among consumers, as well as several reports of increased sensitivity to quality. Spending on home furnishings was down, which contacts attributed to limited household mobility. Demand for mortgages was low overall, though reports on recent changes in home loan demand were mixed due to volatility in rates. Commercial real estate lending was similarly subdued. Still, contacts generally reported financing remained available. Capital spending and purchases of raw materials were flat or declining in most Districts. Sales of farm equipment were a notable headwind to overall investment activity, and several contacts expressed concerns about the future prices of equipment given ongoing weakness in the farm economy. Energy activity in the oil and gas sector was flat but demand for electricity generation continued to grow at a robust rate. The rise in electricity demand was driven by rapid expansions in data centers and was reportedly planned to be met by investments in renewable generation capacity in coming years. post: FED BEIGE BOOK: PRICES ROSE ONLY AT A MODEST PACE ACROSS FEDERAL RESERVE DISTRICTS. post: FED BEIGE BOOK: ECONOMIC ACTIVITY ROSE SLIGHTLY IN MOST DISTRICTS.

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