NAGA : All You Need to Know about Fed Chief Powell’s Remarks on Inflation, Interest Rates and Recession💥

Federal Reserve Chairman Jerome Powell faced congressional lawmakers on Wednesday, 22nd June 2022 extensively discussed the Central Bank's stance on inflation and hike rates. This happened just a week after the Federal Reserve announced its largest interest rate hike in three decades.

On Inflation

Powell told the congressional lawmakers that the Central Bank is not only committed to bringing down inflation but also can do so.

"At the Fed, we are aware of the hardship high inflation is causing. We are strongly committed to bringing inflation back down, and we are working assiduously to do so," the Fed chief said when addressing the Senate Banking Committee. He continued, "We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses." Powell also pointed to "favorable economic conditions with a strong labor force and persistently high demand."

On interest rates and recession

Concerns about a possible recession have grown due to another inflation rise this month. In a bid to combat inflation which is now at 8.6%, the Federal Reserve announced its highest interest rate since 1994. Fed raised rates by 0.75 percentage points last week and hinted at a similar increase next month.

When quizzed by the committee on the possibility of the continued hike rates driving the economy into recession, Powell conceded recession could be a possibility. He argued the US economy is strong enough to withstand tighter monetary policies without sliding into recession. However, he acknowledged the existence of factors outside the Federal Reserve's control, such as Russia's invasion of Ukraine and China's Covid-19 policy. He believed these factors could further complicate the situation of things. "The question of whether we are able to accomplish our goals of 2 percent inflation and a strong labor market depends to some extent on factors that we don't control", he stressed in reference to the hike in commodity prices due to the Russia-Ukraine war and the Chinese government's lockdowns.

Will the Fed raise interest rates again?

As it stands, the Fed is unlikely to lower its efforts to curb inflation rates. We may see another 0.75 percentage point rise at the next Fed meeting in July. Powell stressed that the Fed must have "compelling evidence" of inflation slowing down before it relents on its efforts to raise interest rates. The Fed Chair is expected to have another testimony today by 17:00 (CY time).

What does it mean for traders?

Powell's testimony comes at a crucial point for the global economy. Traders would be assessing how far stocks may fall due to Fed's body language and other factors such as soaring energy prices⛽. Meanwhile, stocks dropped slightly on Wednesday as markets struggled to sustain a rebound from earlier in the day. However, Wall Street still holds strong, and it isn't time for traders to panic about a recession. As the Fed Chief said, decisions will be made "meeting by meeting."

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