Jerome Powell Speech: Fed Chair says removing restrictive stance of policy could begin this year

Federal Reserve Chairman Jerome Powell presents the Monetary Policy Report and responds to questions before the Senate Banking Committee.

Main takeaways from Powell's Q&A session in Senate

"If the economy does as expected, we think carefully removing the restrictive stance of policy will begin over the course of this year."

"We are working hard to develop a new rule book for supervision, will involve earlier, more effective interventions."

"Surge-pricing works both ways, in slow periods prices go down."

"We need to give companies freedom to set prices."

"The Fed is independent, and the way we do that is by staying out of political issues, like immigration policy."

"When rates are normalized, underlying housing shortage will still put upward pressure on prices."

"I believe we will have a consensus on capital proposal, we are in process of digesting comments, making appropriate changes."

"We are not at the stage of making a decision on reproposing Basel 3."

"Our job is to restore price stability, that's what we are doing."

Powell told the House Financial Services Committee on Wednesday that incoming data will determine when they will start reducing the policy rate and repeated that they would like to have greater confidence inflation will move sustainably toward 2% before taking action. Commenting on the economic outlook, Powell noted that there was no reason to think the economy was "in or facing a significant near-term risk of recession."

The benchmark 10-year US Treasury bond yield declined to 4.1% in the American session on Wednesday and the US Dollar (USD) suffered large losses against its major rivals. According to the CME FedWatch Tool, markets are currently pricing in a nearly 90% probability of a rate cut in June.

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This section below covers highlights from Fed Chairman Powell's prepared remarks and the Q&A session on the first day of his testimony. 

Main takeaways from Powell's Q&A session in the US House

"Rate cuts will depend on path of the economy."

"Incoming data will determine when rate cuts begin."

"We would like to have more confidence on inflation; we have some confidence but want more."

"Let's see a little bit more data so we can become confident."

"Strength of economy and labor market means we can approach that carefully, thoughtfully."

"Pandemic may have changed in a sustained way how we target inflation."

"We are seeing continued solid growth, which should continue."

"No reason to think the economy is in or faces significant near-term risk of recession."

"I don't think possibility of recession is elevated right now."

"So far we have economy growing at solid pace, labor market still tight and strong."

"Inflation has come down sharply."

"These are very attractive conditions we want to continue."

"I think we can achieve a soft landing."

"We are using our tools to keep a strong labor market and strong growth while making progress on inflation."

"We are on a good path so far in being able to get there."

"We are making sure banks with commercial real estate sector exposure can manage any losses."

"This fallout will last over next several years."

"Our Fed supervisors are engaged with small and medium-sized banks on their exposure risks."

"Immigration and labor force participation both contributed to strong economic growth we had last year."

"Silicon Valley Bank's failure was due to a too-concentrated funding structure."

"We are not climate change policymakers."

"We are starting very carefully with large institutions on their climate exposure; not for imposing it on small banks."

"Compensation incentives were not a main driver of Silicon Valley Bank's failure."

"Climate change is real and poses risks over the longer term."

Highlights from Powell's prepared statement

"It will likely be appropriate to begin dialing back policy restraint at some point this year."

"Policy rate likely at its peak for this cycle."

"The Economic outlook is uncertain; ongoing progress to 2% inflation is not assured."

"We will carefully assess incoming data, evolving outlook, balance of risks."

"Risks to both cutting rates too early and too fast as well as too late or too little."

"The labor market remains relatively tight."

"Fed’s restrictive stance is putting downward pressure on economic activity and inflation."

"Labor demand still exceeds supply; nominal wage growth has been easing."

"Risks to achieving dual goals moving into better balance."

"While inflation is still above 2%, it has eased substantially."

"The economy has made considerable progress over past year on dual mandate."

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."