US Fed Powell Speaks Today: Testimony before Committee on Financial Services

The Federal Reserve in the report last week announced that additional interest rate increases will be necessary to bring back price stability.

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The US Fed appears to be facing challenges on four main fronts.

Federal Reserve Chair Jerome Powell will testify before the Committee on Financial Services on March 8, 2023, at 10:00 a.m. in Room 2128 of the Rayburn House Office. The House on on Financial Services will hold a hearing on ‘The Semiannual Monetary Policy Report to the Congress.’ On Tuesday, March 7, at 10 AM, Chair Jerome Powell testament was before The committee on Banking, Housing, and Urban Affairs. Major US stock market indices fell sharply during Tuesday’s regular session, as Federal Reserve Chair Jerome Powell indicated that interest rates may need to go higher for longer.

The Federal Reserve in its Monetary Policy Report submitted to Congress last Friday stated that additional interest rate increases will be necessary to bring inflation down. The report indicated that although inflation has cooled down, it still remains significantly higher than the Federal Open Market Committee’s (FOMC) target of 2%.

The US Fed appears to be facing challenges on four main fronts:

One, with significant employment growth, the labour market is still incredibly strong. In addition, the unemployment rate was at historically low levels, and nominal pay growth was still high albeit slowing down. Last but not least, although the underlying momentum in the economy is projected to remain muted, real gross domestic product (GDP) growth accelerated in the second half of 2022.

As far as the solutions are concerned, the US Fed was unambiguous in the report about how to lower inflation in the face of these difficult macroeconomic factors. “Bringing inflation back to 2 percent will likely require a period of below trend growth and some softening of labor market conditions,” is possibly the goal of the US Fed.

The Federal funds rate is currently between 4.5% to 4.75%, up from a nearly zero rate environment as a result of rate increases by the US Fed. The impact of rate hikes has been there but not much. The inflation in January 2023 was 6.4% as opposed to 6.5% in December, but it was still down from a peak of 9.1% in June 2022. A strong labour market and strong consumer demand seem to be impeding the US Fed’s efforts to achieve its 2% inflation target. The Fed may continue raising rates until inflation is close to its comfort level.

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First published on: 08-03-2023 at 07:07 IST
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