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Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee after presenting the semiannual Monetary Policy Report.
Key takeaways from Powell’s question-and-answer session in the US House of Representatives
“Rate cuts will depend on the direction of the economy.”
“Incoming data will determine when rate cuts will begin.”
“We would like to have more confidence in inflation; we have some confidence but we want more.”
“Let’s look at a little more data so we can have confidence.”
“The strength of the economy and labor market means we can approach this carefully and thoughtfully.”
“The pandemic may have steadily changed the way we target inflation.”
“We are seeing continued strong growth, which should continue.”
“There is no reason to think that the economy is or faces a significant risk of recession in the near term.”
“I don’t think the possibility of a recession is high at this point.”
“So far we have an economy that is growing at a solid pace and a labor market that is still tight and strong.”
“Inflation has dropped dramatically.”
“These are very attractive conditions that we want to continue.”
“I think we can achieve a soft landing.”
“We are using our tools to maintain a strong labor market and strong growth while making progress on inflation.”
“So far we’re on a good path to get there.”
“We are ensuring that banks with exposure to commercial real estate can manage any losses.”
“These consequences will last for several years.”
“Our Federal Reserve supervisors are engaged with small and medium-sized banks regarding their exposure risks.”
“Immigration and labor force participation contributed to the strong economic growth we had last year.”
“The failure of Silicon Valley Bank was due to an overly concentrated financing structure.”
“We are not policymakers on climate change.”
“We are starting very carefully with large institutions in terms of their climate exposure, not to impose it on small banks.”
“Compensation incentives were not the main factor in Silicon Valley Bank’s failure.”
“Climate change is real and poses long-term risks.”
Highlights from Powell’s prepared statement
“It will probably be appropriate to start reducing political moderation at some point this year.”
“The policy rate is probably at its peak for this cycle.”
“The economic outlook is uncertain; continued progress toward 2% inflation is not assured.”
“We will carefully evaluate the incoming data, the evolving outlook and the balance of risks.”
“There are risks both in cutting rates too early and too quickly and in cutting rates too late or too little.”
“The labor market remains relatively tight.”
“The Fed’s restrictive stance is putting downward pressure on economic activity and inflation.”
“Labor demand still exceeds supply; nominal wage growth has been moderating.”
“The risks of achieving dual objectives move towards a better balance.”
“Although inflation remains above 2%, it has decreased substantially.”
“The economy has made considerable progress over the past year thanks to a dual mandate.”
This section below was published as a preview of Federal Reserve Chairman Jerome Powell’s testimony at 12:00 GMT.
- Jerome Powell’s testimony in the United States Congress will be a top-level event that will move the market.
- New clues are expected on the path of interest rates from the Federal Reserve.
- The US dollar, stock markets and other asset classes could see big swings following the Federal Reserve Chairman’s words.
Jerome Powell, Chairman of the Federal Reserve System, will testify on March 6 in the United States Congress, before the Senate Banking, Housing and Urban Affairs Committee. The hearing, titled “Semi-Annual Monetary Policy Report to Congress,” will begin at 3:00 p.m. GMT (10:00 a.m. Eastern Standard Time) and will have the full attention of all financial market players.
Jerome Powell is expected to address the key findings of the Federal Reserve’s Semiannual Monetary Policy Report, released last Friday. In that report, the Federal Reserve mentioned that it remains inappropriate to reduce the target range until authorities have greater confidence that inflation will move sustainably toward 2%, adding that they remain vigilant about inflationary risks. The publication also reiterated that the risks to achieving the objectives have been better balanced.
U.S. representatives are expected to ask Powell about the outlook for interest rates, inflation developments, and a lengthy question-and-answer session about the future path of interest rates and how the Fed will assess how much further tightening the policy will be. monetary policy is needed. During Powell’s testimony, markets could see strong moves in the US dollar, US Treasury yields, equity markets and all asset classes, including the price of gold and all major currency pairs.
Frequently Asked Questions About the Federal Reserve
Monetary policy in the United States is determined by the Federal Reserve (Fed). The Federal Reserve has two mandates: to achieve price stability and to promote full employment. Your main tool to achieve these goals is to adjust interest rates. When prices rise too quickly and inflation is above the Federal Reserve’s 2% target, it raises interest rates, raising borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the United States a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to encourage borrowing, which weighs on the dollar.
The Federal Reserve (Fed) holds eight policy meetings a year, at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the eleven remaining regional Reserve Bank presidents, who serve one-year terms. in a rotating manner. .
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Federal Reserve substantially increases the flow of credit in a stagnant financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Federal Reserve’s weapon of choice during the Great Financial Crisis of 2008. It involves the Federal Reserve printing more dollars and using them to buy high-quality bonds from financial institutions. QE usually weakens the US dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing bonds it owns 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 assumed the role of Chairman of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was re-elected to the position and sworn in for a second term four years on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System’s primary monetary policymaking body. Mr. Powell has been a member of the Board of Governors since who assumed office on May 25, 2012, to fill an unexpired term. He was re-elected as a member of the Board and was sworn in on June 16, 2014, for a term that will end on January 31, 2028.”
US Dollar FAQ
The United States dollar (USD) is the official currency of the United States of America and the “de facto” currency of a significant number of other countries where it is in circulation alongside local banknotes. It is the most traded currency in the world, accounting for more than 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data starting in 2022. After World War II, the dollar replaced the pound sterling as the world’s reserve currency. For most of its history, the US dollar was backed by gold, until the Bretton Woods Agreement in 1971, when the gold standard disappeared.
The most important factor influencing the value of the US dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Federal Reserve has two mandates: achieving price stability (controlling inflation) and promoting full employment. Your main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the value of the dollar. When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can reduce interest rates, which weighs on the dollar.
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Federal Reserve substantially increases the flow of credit in a stagnant financial system. It is a non-standard policy measure used when credit has dried up because banks do not lend to each other (for fear that the counterparty will default). It is a last resort when simply reducing interest rates is unlikely to achieve the necessary result. It was the Federal Reserve’s weapon of choice to combat the credit crisis that occurred during the Great Financial Crisis of 2008. It involves the Federal Reserve printing more dollars and using them to purchase US government bonds predominantly from financial institutions. QE usually leads to a weaker US dollar.
Quantitative tightening (QT) is the reverse process by which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing bonds it owns into new purchases. It is usually positive for the US dollar.