What’s changed since Powell last headed to Capitol Hill
Federal Reserve Chair Jerome Powell is set to deliver the first part of his two-day semi-annual monetary policy testimony before Congress before the Senate Banking Committee on Tuesday.
This is his first appearance before the committee since June last year when inflation stood at 9%.
Powell is expected to raise the US central bank’s benchmark interest rate from near zero to 4.5% to 4.75% in its yearlong campaign to rein in high inflation.
Inflation has eased in recent months, measuring 6.4% in January after hitting a 40-year high of 9.1% in June. However, the battle is not yet won, and Powell and other Fed officials have cautioned that disinflation will be worse and there is a “long way to go.”
Fed policymakers have warned in recent weeks that interest rates will likely have to be kept high for a long time to settle inflation to the central bank’s 2% target.
This time last year, Powell’s address to Congress came amid Russia’s invasion of Ukraine, rising gas prices and a significant increase in US inflation. The economy continues to recover and repair itself from the lingering effects of the pandemic – including the disruption of the Omicron variant.
Faced with a strong labor market, uncertain geopolitical developments and rising inflation, Powell then told members of Congress that he would propose a quarter-point rate hike at the central bank’s upcoming meeting.
It is now March 2023, and the central bank is facing an “unusually strong” labor market, ongoing geopolitical uncertainty and stubborn inflation. However, there are signs that some inflationary pressures have eased: China’s economic growth was recently slowed; And supply chain disruptions are easing, the Federal Reserve Bank of New York reported Monday.
Markets currently expect the Fed to make another quarter-point rate hike during its next meeting two weeks from now: CME FedWatch Tool showing a 69.4% probability of such an increase. However, the odds of a half-point increase (at 30.6%) have increased significantly over the past few weeks. A month ago, the probability of a half-point hike was 3.3%, according to the CME FedWatch tool.
Still, several big pieces of economic data — the latest labor turnover report, monthly jobs report, consumer price index, producer price index, and retail sales — are all due ahead of the Fed’s next policymaking meeting on March 21-22. .