Jerome Powell Speech: All about Fed Chair's second day in US Congress

• Jerome Powell to deliver his testimony before the US House Financial Services Committee.
• Fed Chair embarks on second day in US Congress on Q&A session with representatives.
• US Dollar rallied on Tuesday after Powell’s hearing in the US Senate.

Jerome Powell, Chairman of the Federal Reserve System, is delivering his written testimony speech in front of the US House Financial Services Committee on Wednesday at 15:00 GMT. It is the second day that Powell addresses the US Congress after delivering a notably hawkish testimony on Tuesday in front of the US Senate Committee on Banking, Housing, and Urban Affairs. There, Powell mentioned that the Fed is “prepared to increase the pace of interest rate hikes” to help inflation return to the 2% target.

The US Dollar rallied across the board after his remarks on Tuesday, with the US Dollar Index (DXY) reaching year-to-date highs close to 106. In contrast, most risk-on assets suffered, with US stock markets, most major currency counterparts and Gold price lost between 1% to 2% on the day.

After reading his testimony, Powell answers questions from the US representatives in another Q&A session. You can follow the hearing live in the following video:

Please check out our news feed for the latest on FOMC Chairman Powell's testimony and the market reaction.

These are the main takeaways from Powell's Q&A sessions in the US House:

Costs of not getting inflation down will be extremely high

"US Dollar is only serious candidate for world's reserve currency."

"We can pay bills when we have negative income."

"Inflation is coming down but it's very high."

"Some part of the high inflation we have is likely related to extremely tight labor market."

"Every forecaster is baking in lower rent increases this year."

"Costs of not getting inflation down will be extremely high."

"Costs of failure to control inflation would be much higher than costs of controlling it."

"Committed to bringing prices down."

"A faster reopening from China could have offsetting effects on inflation."

"China's faster reopening could put upward pressure on commodities prices but also quicker healing of supply chains."

"We expect China's impact to be moderate overall."

We have not made any decision yet about March meeting

"We have important data before March meeting."

"I haven't seen JOLTS data yet."

"We have not made any decision yet about March meeting, it's data-dependent."

"We will be guided by incoming data."

"Terminal rate is likely to be higher than we expected."

"Extraordinarily strong jobs report and inflation reports pointed in the same direction."

 

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These are the main takeaways from Powell's Q&A sessions in the US Senate on Tuesday:

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 need to continue to tighten

"Hard to make case we have overtightened."

"We need to continue to tighten, we are very mindful of lags."

"We don't think we need a significant increase in the unemployment rate."

"But will need softening in labor market to get to 2%."

"Social costs of failure are very, very high."

"If inflation were to continue that would become the psychology."

"If we fail, it would mean an up and down economy."

"Capital allocation is also difficult in that type of world."

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."

Read the full Jerome Powell testimony in the US Senate

You can watch the full Federal Reserve chair’s testimony on the US Senate on Tuesday in the following video:

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."