Since the Fed is going to raise interest rates, why doesn't it do it all at once? Reporters are confused, and Powell made a crucial analogy.
Powell said, "It's like driving a car," where the issue of speed is different from the issue of the final level. For last year, "speed" was very important, but as we get closer to our destination, it's common sense to slow down.
The Federal Reserve paused its rate hikes as scheduled, but Chairman Powell used a metaphor to dispel market doubts.
Although the Fed has finally stopped raising interest rates, the dot plot and economic outlook both show that the Fed may have two more rate hikes this year; Powell's speech is also relatively hawkish, saying that rate cuts this year are inappropriate. This has left people very confused, why did the Fed stop halfway? Powell explained that it's like driving a car, the closer you get to the finish line, the slower you should go.
On Wednesday, June 14th, the Federal Open Market Committee (FOMC) announced after its meeting that it would maintain the target range for the federal funds rate at 5.0% to 5.25%, keeping this policy rate at its highest level in 16 years. The rate decision was unanimously supported by FOMC voting members.
The updated dot plot from this meeting also showed that 16 of the 18 Fed officials expected rates to be above 5.25% by the end of this year, up from 7 in March. This means that they hope to further raise rates in the future.
So the confusing question arises - commentators, economists, and journalists are all curious, if the Fed needs to continue to raise interest rates, why doesn't it do so in one fell swoop? At the press conference, Nick Timiraos, a Wall Street Journal reporter who is considered the "voice of the Fed" and is known as the "new Fed communication agency," was the first to raise this question.
Powell made a magical metaphor in response. He replied:
It's like driving a car.
The issue of speed is different from the issue of the final level. For last year, "speed" was very important, but as we get closer and closer to our destination, it's common sense to slow down.
However, the Financial Times believes that comparing the economy to a car is already a "hackneyed phrase" of the Fed, and it is neither new nor appropriate. This is not essentially a competition, a road trip, or a commute. The "car" with symbolic significance in Powell's mouth does not need to desperately catch up with anything, because theoretically, this would risk hitting obstacles in front. So from this perspective, Powell may be expressing confidence that there will be no economic recession.