Federal Reserve Chair Jerome Powell presented the Semiannual Monetary Policy Report to the House Financial Services Committee on Wednesday, sparking a positive response in the market. With the next Federal Open Market Committee (FOMC) meeting on the horizon, investors eagerly sought insights into the Fed’s stance on interest rates.
Powell hinted at the Fed’s inclination to lower interest rates this year during his testimony. He emphasized that with inflation nearing the 2% target and minimal impact on unemployment or economic growth, the policy rate might have peaked for this tightening cycle. However, Powell cautioned against premature or excessive rate cuts, which could hinder progress in inflation or weaken economic activity.
While Powell’s remarks suggested a potential rate reduction, he clarified that any action would depend on sustained progress towards the 2% inflation target. With the Personal Consumption Expenditures (PCE) measure of inflation at 2.4% in January, the Fed awaits further data, including the February PCE report due on March 29, before making any decisions.
In the question-and-answer session, Powell expressed confidence in the economy’s trajectory, citing robust strength in both the economy and the labour market. He reassured that any policy adjustments would be approached carefully, gradually easing restrictions.
Powell’s optimistic outlook also addressed concerns of an impending recession, highlighting the economy’s resilience and growth. His remarks buoyed investor sentiment, particularly in technology stocks, which surged Wednesday.
As Powell prepares for another session before the committee and the FOMC convenes on March 19 and 20, investors eagerly await further guidance on monetary policy.