Federal Reserve Chairman Jerome Powell delivered a speech to Sweden’s Riksbank on Tuesday, emphasizing the need to be free of political influence. 💬
He’s been consistent in his messaging that the Fed needs to tackle high inflation. However, he reiterated in today’s message that achieving the central bank’s goal will require “tough decisions” that are likely to be politically unpopular.
This underscores the persistent problem that the Fed is facing. For inflation to come down, it must slow the economy. But a slower economy and lower asset prices, specifically the housing market, will also raise unemployment. This puts politicians in a tough spot and often causes them to take actions that flow counter to the Fed’s efforts.
Powell recognizes this and likely used today’s message to continue signaling to the market that he’s staying the course, even when things get difficult. Or more specifically, even if politicians look to influence the central bank in one way or another. 🧭
Meanwhile, officials from the World Bank cut their global economic forecast for 2023 again. It now sits at 1.7%, down from their 3% estimate last June. 🔻
Their comments further emphasized the need to tackle inflation and noted that the U.S., Eurozone, and China are all undergoing a period of pronounced weakness. This led to the headline comment that the global economy is “perilously close to falling into recession.”
If they’re correct in their forecast, governments and individuals will have to adjust to weather the storm…although we already see signs of that. ⚠️
In the U.S., 46% of credit card holders now carry a balance as rates hit record highs. And in France, the government is reforming its entitlement programs by raising the retirement age to 64.
In addition to this commentary, investors are awaiting U.S. bank earnings on Friday. This earnings season, they’ll analyze how well companies are faring in the current environment and what they expect in the year ahead. 📆