By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Federal Reserve Chairman Powell has spoken and his comments have impacted equity markets today. His remarks should also finally dissuade investors of the idea that the Fed has accomplished its intended objective of tamping down inflation with little destruction to the economy and employment. Powell stated, “we must keep at it until the job is done.” According to the WSJ, “while the central bank’s steps to slow the rate of investment, spending, and hiring ““will bring down inflation, they will also bring some pain to households and businesses,”” Mr. Powell said in a speech at the Kansas City Fed’s annual symposium in Wyoming. ““Those are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”” Echoing Powell, St. Louis Fed President, James Bullard, said in an interview this morning “we need to have higher rates for longer”.

As we wrote in yesterday’s post, the Fed is far from done, and getting to an inflation level of around 2% will take much longer than most market participants are currently believing. We certainly don’t want to see demand for goods and services reduced or unemployment elevated, but we do understand that in order to combat the onerous impact of inflation aggressive action on interest rates is necessary. US interest rates need to be elevated until there is an inflation premium embedded in rates. We are far from that occurring today.