Jerome Powell Testimony LIVE: FOMC feels two rate hikes this year might be appropriate
- Jerome Powell delivers his bi-annual testimony in front of congressional lawmakers.
- Fed Chair responds to questions after delivering the Semi-Annual Monetary Policy Report.
- US Dollar, stock markets and all asset classes on the move with Powell’s words.
Jerome Powell, Chairman of the Federal Reserve System (Fed), is about to testify before the Banking, House and Urban Affairs Committee in the US Senate on Thursday, starting at 14:00 GMT. It is the second day of Powell’s testimony in the US Congress after speaking in front of the Financial Services Committee in the House of Representatives. US senators will ask questions Chairman Powell on a variety of topics, including financing conditions, inflation outlook and future monetary policy steps.
On Wednesday, during the hearing in the US House, entitled “The Federal Reserve’s Semi-Annual Monetary Policy Report”, the Federal Reserve Chairman reiterated the commitment of the Fed toward their 2% inflation target, acknowledging it is still far from being met. Jerome Powell balanced this take with some dovish remarks, expressing the need to moderate the pace of interest rate hikes and hinting that “raising interest rates can be painful and slow demand.” The US Dollar sold off in reaction, with the US Dollar Index (DXY) coming back to 102 and the EUR/USD reaching levels close to 1.10.
These are the main takeaways from Powell’s Q&A sessions in the US Senate:
We have not seen much progress in services inflation
“Headline inflation has come down, but that’s largely from energy and food prices not principally a function of monetary policy.”
“We are seeing progress in supply chains.”
“We have not seen much progress in services inflation.”
“We still have a long way to go.”
“I dont think monetary policy is becoming less effective.”
“There’s no consensus agreement on how long it takes monetary policy to affect economy, but a year and change is not a bad way to look at it.”
“We have identified banks that have a higher concetration of commercial real estate, working with them.”
Will be appropriate to raise rates again this year, perhaps two more times
“FOMC broadly feels it will be appropriate to raise rates again this year and perhaps two more times.”
“We kept rates on hold to give ourselves more time to make decisions.”
“A strong majority of the committee feels there is a little further to go with rate hikes.”
“It would be perfect, but no guarantee, that labor market can get into better balance without unemployment rising.”
“There’s a clear need to strengthen supervision and regulation for banks of SVB’s size.”
These are the main takeaways from Powell’s Q&A session on Wednesday in the US House:
While raising rates can be painful, it slows demand
“This economy is very strong.”
“A very strong labor market is driving the economy.”
“Inflation is moving down gradually.”
“The thing that troubles people is really inflation.”
“While raising rates can be painful, it slows demand.”
“We want to get back to price stablity, want to get back to that place where inflation is low enough that people don’t think about it.”
“We are on a journey to get to price stability, we have quite a ways to go but we are making progress.”
Status of Dollar as world’s reserve currency is very important
“The status of the Dollar as world’s reserve currency is very important.”
“Fed’s inflation and employment mandates are perfectly equal.”
“We should focus heavily on inflation, as we are far from that goal now.”
“We will return to 2% inflation.”
“We are moving the balance sheet back down, but won’t go back to a scarce reserve level.”
“It is important that the balance sheet not just grow with every cycle.”
“Demand for reserves can be volatile.”
“We don’t want to be in the same position as last reduction cycle.”
There are still significant labor shortages
“There is an expectation that ratio of job openings to unemployed people will come down.”
“That’s a way for labor market to become less tight without having unemployment rise.”
“There are still significant labor shortages.”
“Data is suggesting a gradual cooling in labor market, but we still have significant excess demand over supply.”
“Housing supply and demand are getting back into line.”
“Housing inflation will come down significantly this year, next year.”
We are very far from our inflation target
“Our banks are very strongly capitalized.”
“We are very far from our inflation target.”
“We are strongly committed to getting inflation back down to 2% over time.”
“We learned from Silicon Valley that there is a need for stronger supervision, regulation for banks of that size.”
“There are situations in which we need to be more forceful, not in all situations though.”
May make sense to move rates higher, at more moderate pace
“Level for rates and speed of rate hikes are separate.”
“Early in process, speed was important, less so now.”
“It may make sense to move rates higher, at a more moderate pace.”
“We are moderating the pace, much as you might decelerate a car as near destination.”
“Regulation should be transparent, consistent, not too volatile.”
“Capital is central to banking regulation.”
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
About Jerome Powell (via Federalreserve.gov)
“Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System’s principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028.”