The September jobs report showed that inflation was not under control, according to former Treasury Secretary Larry Summers, who warned on Friday that the economy was likely headed for a collision of some kind.
A looming recession has weighed on markets all year, as the central bank scrambles to raise rates and bring down inflation. After seeing prices hold high despite three aggressive rate hikes this year, Powell took on a more hawkish tone and said the Fed would now try for a soft landing.
Last week's non-farm payroll report showed that the US added 263,000 jobs in September, ahead of expectations.
While wages looked like they were on a decline, they were distorted by the fact that there are more workers flooding into low- wage jobs in the leisure andhospitality industries, according to the director of the White House National Economic Council.
September's core inflation rate, which was below headline inflation at 7%, looked "artificially good" as the core rate is above the quarterly rate of inflation, which is above the half year rate of inflation.
He said that the economy is too strong to be an economy where inflation is falling. We have to manage that collision carefully because I think we are headed for a collision. The better we're going to do, the sooner we start managing for a slower pace.
The dilemma facing the Fed is that it hikes rates to bring inflation down but at the expense of an economy that is doing well. The former Treasury secretary has said that it will take unemployment reaching 6 to beat inflation and that the Fed may need to raise rates.
Experts have warned of a crash. Scott Minerd warned that a sell-off could happen as soon as October as a recession becomes more likely, and Jeffrey Gundlach said that stocks could plunge by 20% if the Fed causes deflation.
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