In his public speech on monetary policy in the early morning of the 20th, Federal Reserve (Fed) Chairman Powell reiterated the Fed's commitment to "cautiously" advance interest rate adjustments, suggesting that the probability of a rate hike in November is low overall; but at the same time he did not make a final statement, saying that if economic growth continues to be strong, further interest rate hikes are not ruled out.

After the conversation, according to Fedwatch data, the market currently predicts that the probability of maintaining the current interest rate of 5.25% to 5.50% at the November FOMC meeting has risen to 99%.

Powell: Recent economic growth 'surprising'

In his speech, Powell said the Fed was trying to balance two goals: wanting to fully control inflation while also wanting to avoid taking too much action that would cause unnecessary damage to the economy.

But he said economic growth so far has been unexpectedly strong: Consumers have kept spending, businesses have kept hiring, and while wage gains have slowed, the overall strength of growth has been enough to make some economists question whether the slowdown can push inflation back toward the Fed’s 2% target.

We are watching recent data showing the elasticity of economic growth and labor demand, adding to evidence of persistently above-trend growth, which could send inflation further south and lead to further tightening of monetary policy if tight labor market conditions do not ease.

However, it seems to be a consensus that high interest rates will last longer and longer, he added:

It may just be that interest rates remain high enough for long enough.

The evidence does not suggest that policy is currently too tight.

Geopolitics will increase global uncertainty

In addition, Powell also expressed his views on the Israeli-Palestinian conflict, which has attracted much attention in recent days. He believes that geopolitical tensions will increase uncertainty in the global outlook:

Geopolitical tensions are highly elevated, posing significant risks to global economic activity.

Ten-year U.S. Treasury bond yields climb nearly 5%

It is worth noting that while Powell was speaking, the U.S. 10-year Treasury bond yield continued to rise, reaching a new high since 2020, reaching 4.99%.

As interest rates rise and the market may believe that Powell has not given up the possibility of raising interest rates, the four major U.S. stock indexes fell across the board:

  • The Dow Jones Industrial Average fell 250.91 points, or – 0.75%, to close at 33,414.17.

  • The S&P 500 index fell 36.60 points, or – 0.85%, to 4,278.00.

  • The Nasdaq Composite Index fell 128.13 points, or – 0.96%, to close at 13,186.18.

  • The Philadelphia Semiconductor Index fell 45.68 points, or – 1.34%, to 3,367.77.