Get your boots ready: The Federal Reserve is going hiking again.
That is, if former Council of Economic Advisers Chairman Kevin Hassett is correct about the signals the central bank is currently flashing, after pausing its interest rate hikes in June and resuming the raise in July. That brought borrowing costs to their highest level since January 2001.
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"The inflation numbers are going to surprise on the upside because gas prices have gone up so much, and so we are looking at a top-line [consumer price index] of 0.8% or so," Hassett said. "And when those numbers come out, the Fed is obviously going to have to start talking about hiking again.
"And I think markets haven't fully digested that."
Federal Reserve Chairman Jerome Powell has been hinting his intentions for at least a week, according to Hassett, flashing some concerning signals for investors who want the Fed to continue its pause on interest rate hikes.
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"He was saying things like, 'we have to be mindful of risks.' Well if the Fed is being mindful of risks, that means it is sort of wondering whether everything it's signaling is incorrect and they are setting the stage for a reversal because the data is just so strong right now," Hassett said.
Speaking at the Fed's central-banking symposium at Jackson Hole, Wyo., last week, Powell said further rate decisions will hinge on incoming data, but bringing down inflation still has a "long way to go" despite recent "welcome" improvements.
"Twelve-month core inflation is still elevated, and there is substantial further ground to cover to get back to price stability," he added. "Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy."
Check out Kevin Hassett's full comments in the video below.
"The Fed is obviously going to have to start talking about hiking again and I think markets haven't fully digested that," says Fmr. CEA Chairman Kevin Hassett. "The Fed is wondering if everything it's been signaling is incorrect if they're setting themselves up for a reversal." pic.twitter.com/nmHUj3ysG0
— Squawk Box (@SquawkCNBC) August 29, 2023
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