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Fed Chair Jerome Powell is delivering his bi-annual testimony before the US Senate. He presents the Monetary Policy Report before the Q&A session with senators. The US dollar, stock markets as well as all other asset could be on the move with Powell’s words.
The US Dollar’s bullish rally remains intact with the US Dollar Index rising more than 1% on the day at 105.40 following these comments.
Powell delivered a notably hawkish testimony, mentioning that the Fed is “prepared to increase the pace of interest rate hikes” to help inflation return to the 2% target. The US dollar is gaining ground across the board after these remarks, while US stock markets, most major currency counterparts and Gold price are all losing around 1% on the day. After reading his testimony, Powell is answering questions from the US senators.
Key Quotes:
“Overall data on labor market shows it is extremely tight”
“We don’t think we need to see a sharp rise in unemployment to get inflation under control.”
“We are not targeting a higher unemployment rate.”
“4.5% unemployment rate is still well better than most times historically.”
“No obvious candidate that could replace dollar as world’s reserve currency.”
“Size of corporate profits can affect the inflation rate.”
“Without large increase in productivity you would not be able to sustain high wage inflation over the longer term but could in short term.”
“Some softening in labor market will need to happen to get inflation under control.”
“Overall data on labor market shows it is extremely tight and contributing to inflation.”
“What we are seeing in economy is mostly about supply chain problems and blockages.”
“When that gets fixed, corporate profit margins will come down.”
Nothing about data suggests we’ve tightened too much
“Nothing about data suggests we’ve tightened too much; rather suggests we have more work to do.”
“Data so far suggests we’ll have a higher terminal rate in our next Summary of Economic Projections.”
“Inflation is extremely high and hurting working people of this country badly.”
“We are taking only measures we have to bring inflation down.”
“Working people will not be better off if we don’t get inflation down.”
Carefully monitoring small and medium size banks’ exposure to commercial real estate
“Not big spike in business debt generally.”
“However, there are pockets of concern including upcoming refinancing.”
“We are watching that carefully.”
“In terms of commercial real estate, occupancy of office space is remarkably low.”
“Over time that space will be changed into condos.”
“Most big banks though don’t have a lot of exposure to commercial real estate.”
“We carefully monitor small and medium size banks’ exposure to commercial real estate.”
“Fed is very strongly committed to tailoring regulations for banks.”
Wages have been moderating without softening in labor market
“We are seeing goods inflation coming down for some time now.”
“Housing services inflation coming down is in the pipeline for the next 6–12 months.”
“But core services ex-housing is where the challenge is now.”
“We can’t impact that sector without affecting others.”
“Our tools are powerful but blunt.”
“Wages have been moderating without softening in labor market.”
“We have many unusual factors affecting inflation and we don’t think anyone knows how this is going to play out.”
“We’ll be watching broader services sector very carefully.”
“We have not seen full effects of rate hikes yet.”
“We are watching carefully for the lags in monetary policy coming into play; will take that into account for rate hikes.”
“We are very focused on core inflation.”
We are trying to create disinflation
“Congress needs to raise the debt ceiling.”
“Failing to do so, the consequences could be extraordinarily adverse and do longstanding harm.”
“Fed will do what it can to restore price stability while preserving maximum employment.”
“Fed is not in conflict right now on its dual mandate.”
“There could be a time when our mandates are in conflict.”
“We are very far from price stability mandate.”
“We are not trying to raise the unemployment rate.”
“We are trying to realign supply and demand through a bunch of channels including job openings.”
“We are trying to create disinflation.”
“Core inflation has not come down as fast as we hoped”
“There is mismatch between supply and demand; we still see that in the goods sector, you also see it in the labor market.”
“We will keep capital requirements strong.”
“We have the tools to get inflation down over time.”
“We will achieve 2% inflation goal.”
“Core inflation has not come down as fast as we hoped, has a long way to go.”
Powell sees little signs of disinflation, delivers hawkish testimony
“If totality of incoming data indicates faster tightening is warranted, we are prepared to increase pace of rate hikes.”
“Ultimate level of interest rates likely to be higher than previously anticipated.”
“Will continue to make our decisions meeting by meeting, based on totality of incoming data and implications for outlook for growth and inflation.”
“Some of strength in overall January data likely reflects unseasonably warm weather.”
“Little sign of disinflation so far in core services excluding housing.”
“To get inflation back down to 2% need lower inflation in core services ex housing and very likely some softening in labor market.”
“Ongoing increases in policy rate likely appropriate in order for stance to be sufficiently restrictive to get inflation back to 2% over time.”
“Long way to go on getting inflation back down, road likely to be bumpy.”
“We still stay the course until job is done.”
“We don’t think we need to see a sharp rise in unemployment to get inflation under control.”
“We are not targeting a higher unemployment rate.”
“4.5% unemployment rate is still well better than most times historically.”
“No obvious candidate that could replace dollar as world’s reserve currency.”
“Size of corporate profits can affect the inflation rate.”
“Without large increase in productivity you would not be able to sustain high wage inflation over the longer term but could in short term.”
“Some softening in labor market will need to happen to get inflation under control.”
“Overall data on labor market shows it is extremely tight and contributing to inflation.”
“What we are seeing in economy is mostly about supply chain problems and blockages.”
“When that gets fixed, corporate profit margins will come down.”
