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Powell Hearing: Inflationary pressures to continue until mid-year or later this year to shrink balance sheet |

Federal Reserve (Fed) Chairman Powell on Tuesday (11) went to the Senate Banking Committee nomination confirmation hearing, he expects inflationary pressures to continue into the middle of this year, will begin to shrink the balance sheet later this year.

About Inflation

“We will use our tools to support the economy and a strong labor market and prevent rising inflation from entrenching,” Powell said in his opening remarks at the hearing on Tuesday.

Powell said that the labor market is recovering rapidly, the U.S. economy no longer needs a highly easing policy, and it is estimated that inflationary pressure will continue until the middle of this year. The current focus of the Fed is to deal with inflation, not to promote more employment growth or Prevent the recession caused by the epidemic.

About the epidemic

Omicron may disrupt supply chains, but the U.S. economy will ride out the current surge in new crown diagnoses because any impact on the economy will be short-lived and likely won’t derail the Fed’s rate hikes and tightening this year, Powell said bond purchase plan.

About raising interest rates

Powell said on Tuesday that the Fed would raise interest rates more times over a longer period if necessary.

“The Fed will end its bond purchases in March, which means we’ll be raising rates during the year…if needed to contain price pressures and help ensure full employment, the Fed would not hesitate to act, if we There will have to be further rate hikes over time, and we’ll do that.”

Both Cleveland President Loretta Mester and Atlanta Fed President Raphael Bostic supported a rate hike in March. Investors in federal funds futures predict the Fed will raise interest rates four times this year, according to CME’s FedWatch tool.

About the abbreviated table

The Fed plans to shrink its balance sheet earlier and faster than in the previous cycle, compared with the post-recession period of 2007-2009.

“At some point, maybe later this year, we’ll be allowed to shrink the $8.77 trillion balance sheet, and that’s the path to normalizing policy,” Ball said.

Wall Street Analysis

The market believes that Powell’s current challenge is to ensure that the Fed is controlling inflation, while not letting the market worry that “the Fed may act too aggressively, causing a recession or affecting the balance of the labor market.”

“The Powell hearing Q&A is nothing new, but overall he reinforces the consensus view that the Fed is turning in a hawkish direction,” wrote 22V Research analyst Gerard MacDonell.

“Volatility is likely to return to Wall Street in 2022, and interest rates are likely to be the deciding factor as all the focus is on the Fed, how many rate hikes and when the Fed thinks it’s enough,” said Paul Nolte, portfolio manager at Kingsview Investment Management. It will be the focus of investors’ attention in the coming weeks.”

Wall Street expects Powell to receive bipartisan confirmation of the Fed chair nomination in the Senate, having won 84 to 13 four years ago. Lael Brainard will appear at a Senate nomination hearing on Wednesday (13th) to take over as vice chairman from Richard Clarida, who will leave early on Jan. 14 amid the stock-trading scandal.


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