The Federal Reserve (Fed) Chairman Powell went to Congress as scheduled on the evening of February 11th Taiwan time at 11pm to attend the Senate Banking Committee's monetary policy hearing and deliver a semi-annual monetary policy testimony (he will also report to the House Financial Services Committee at the same time point tonight). The following summarizes the key points of Powell's testimony.
What did Powell say at the hearing?
1. The Fed is in no hurry to cut interest rates
Powell first reported on the Fed's path of interest rate cuts, saying that since the current U.S. economy is performing well, the Fed is in no hurry to continue cutting interest rates:
Given that our policy stance is no longer as constrained, and the economy remains strong, we are not currently in a hurry to change our policy stance.
At the same time, Powell also explained that the series of interest rate cuts last year were entirely due to the necessary adjustments in the Fed's policy stance to respond to changes in inflation and labor market performance.
Looking ahead, Powell said that if the inflation rate does not continue to decline to the target level and the economy remains stable, the Fed may keep interest rates unchanged for a longer period of time; conversely, if the labor market unexpectedly weakens or the inflation rate declines faster than expected to the 2% target, the Fed may take action to cut interest rates.
2. The U.S. economy is performing strongly overall, the labor market is stable, and the inflation rate is close to 2%
- Powell cited recent economic data to point out that U.S. economic activity is still expanding at a steady pace, with GDP growth showing overall stability throughout the year;
- A series of indicators also show that the current U.S. labor market is largely in balance, and the labor market is not the main source of inflationary pressure;
- The U.S. inflation rate is close to the 2% target, but slightly higher, and the current policy is prepared for risks and uncertainties, that is - if the economy remains strong and inflation approaches the 2% target, interest rate policy will be cautious for a long time; if the labor market unexpectedly weakens or inflation declines faster than expected, policy can be moderately relaxed.
3. Other views
- Powell said he would work to end de-banking and promised to avoid banks taking on excessive burdens;
- Regarding Trump's tariff policy, Powell said the Fed should not comment, but he reiterated his previous view that countries with free trade grow their economies faster;
- Powell emphasized that under the law, the U.S. president cannot dismiss Fed governors;
- Powell pointed out that the balance sheet is still shrinking, but the Fed will stop the balance sheet reduction when market conditions are slightly above "sufficient";
- It is worth mentioning that Powell also mentioned the regulatory aspect of stablecoins this time, saying he supports the establishment of a regulatory framework around stablecoins.
Analyst: Powell's speech was hawkish
Regarding Powell's remarks, an institution has evaluated Powell's remarks through its Fed sentiment model and rated them as slightly hawkish, with the analyst pointing out that Powell's remarks suggest that the Fed is likely to remain on hold in the next few meetings:
We can't really get any new insights about the Fed from Powell's congressional testimony today, as it's at least clear that the Fed will stand pat at the next meeting, and the banking committee's questions tend to be more political statements than monetary policy issues.
Against this backdrop, the current CME FedWatch tool shows that the market expects the probability of the Fed keeping interest rates unchanged at its March 19 rate meeting to continue to rise, reaching 95.5%; the probability of a 25 basis point cut is only 4.5%.
Bitcoin briefly fell below $95,000
In the context of Powell's cautious stance and the market's expectation that interest rates will remain unchanged, Bitcoin also began to fluctuate and fall last night after 11pm, reaching a low of below $95,000 around 3:30am. As of the time of writing, it is reporting at $95,962, a 24-hour decline of 1.92%.
In addition, U.S. stocks on the 11th showed mixed performance:
- The Dow Jones Industrial Average closed up 0.28% (123.24 points) at 44,593.65 points
- The Nasdaq Composite Index fell 0.36% (70.41 points) to 19,643.86 points
- The S&P 500 Index rose 0.03% (2.06 points) to 6,068.50 points
- The Philadelphia Semiconductor Index fell 0.05% (2.7 points) to 5,079.97 points.
