After experiencing a two-day downturn, US markets rebounded on Wednesday, with the S&P 500 climbing approximately 0.7%, the Dow Jones gaining 230 points, and the Nasdaq advancing 1%. Investor sentiment was influenced by Federal Reserve Chair Powell’s testimony before Congress and the release of key economic data. Powell reiterated the Fed’s cautious approach to rate adjustments, emphasizing that any decision to lower rates would be contingent upon a substantial uptick in inflation, aiming for a target of 2%.
Fed Chair Powell addressed the House Financial Services Committee today, presenting the Federal Reserve’s Semi-Annual Monetary Policy Report on Wednesday, March 6, 2024.
Federal Reserve Chair Jerome Powell has expressed a cautious outlook on monetary policy, stating, “We believe that our policy rate is likely at its peak for this tightening cycle.” Powell hinted at the possibility of easing policy restraint later this year, contingent on the economy’s alignment with expectations. However, he emphasized the uncertainty surrounding the economic outlook and the challenges in achieving the 2 percent inflation objective, cautioning that progress is not guaranteed.
In his testimony before Congress, Federal Reserve Chair Jerome Powell reaffirmed the Fed’s steadfast commitment to its dual mandate of achieving maximum employment and stable prices for the American people. Powell acknowledged the significant progress made by the economy towards these goals over the past year.
Regarding inflation, Powell noted that while it remains above the Federal Open Market Committee’s (FOMC) objective of 2 percent, it has eased considerably. He highlighted that this moderation in inflation occurred without a notable increase in unemployment. As labor market tightness has relaxed and inflation progress continued, Powell indicated that risks to achieving employment and inflation objectives are becoming more balanced.
Despite this, the Committee remains vigilant about inflation risks, recognizing the hardship it imposes, particularly on those with limited means to cope with rising costs of essentials like food, housing, and transportation. The FOMC is firmly committed to restoring inflation to its 2 percent objective, emphasizing that price stability is crucial for sustaining robust labor market conditions that benefit all.
Powell mentioned that while inflation has moderated over the past year, it still surpasses the FOMC’s longer-term goal of 2 percent. Total personal consumption expenditures (PCE) prices rose 2.4 percent in the 12 months ending January. Excluding volatile food and energy categories, core PCE prices increased by 2.8 percent, demonstrating a notable slowdown compared to 2022, affecting both goods and services prices. Powell highlighted that longer-term inflation expectations remain well-anchored based on various surveys and market measures.
Since mid-2022, the FOMC has maintained the target range for the federal funds rate at 5-1/4 to 5-1/2 percent after significantly tightening monetary policy.
Powell is scheduled to appear before the Senate Banking Committee for his semi-annual legislative testimony tomorrow. Additionally, on March 20, the Federal Open Market Committee will announce its latest policy decision and conduct an economic projections review.