Powell Content With Economy, FED Interest Rate to Remain High

Central bank leaders like Powell and Knot engaged in a discussion earlier today. Powell, as the Fed Chairman seemed content with the shape of the US economy overall, apart from certain caveats, which means that the FED won’t be in a rush to cut interest rates.

Powell's comments are weighing on stock markets

Knot, as the President of the Dutch Central Bank, plays a significant role in shaping monetary policy of the ECB as well, since he is a board member. Their exchange provided valuable insights into the US economic conditions and FED monetary policy strategy.

Comments from FED Chairman Jerome Powell

  • Current Policy Rate: The policy rate is restrictive, and the Fed is likely to maintain it rather than reducing it. There’s a focus on managing inflation, and the Fed’s credibility is seen as essential for achieving its mandates.
  • Policy Goals: The Fed aims to return inflation to 2%, but there’s recognition that it may take longer than expected. Patience is emphasized in letting policy work.
  • Inflation: Q1 showed a lack of further progress on inflation, with mixed readings in the PPI. There are observations that inflation may take longer to decrease, but real progress has been made.
  • Consumer Spending/Growth/GDP: The US economy is performing well, with strong consumer spending and business investment. Continued GDP growth of 2% or better is expected.
  • Post-Pandemic Economy: The post-pandemic economy has shown resilience, surprising observers with its performance.
  • Employment/Labor Market: The labor market is strong, with signs of gradual cooling and better balance between supply and demand. Labor shortages persist in many industries.
  • Banking and Banking Risk: The US banking system is in good shape, with strong and well-capitalized banks. Credit growth has been modest, but there’s concern about the fast growth of lending activities by nonbank financial firms.
  • Housing Market: Housing inflation remains puzzling, with longer-than-expected lags between market rate declines and their appearance in leases.

The overall economic data presents a positive outlook for the US economy, as confirmed by Jerome Powell. Despite facing obstacles and uncertainties, especially regarding inflation and the housing market, the Fed’s expectations have been exceeded. This has led to the patience we have seen from the FED.

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Skerdian Meta
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Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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