Attending US FSC hearings
“Quantitative tightening probably in the second half”
Emphasis on price containment for employment
Federal Reserve (Fed) Chairman Jerome Powell speaks during a confirmation hearing before the Senate Financial Services Committee in Washington, DC, on Nov. Washington/AP Yonhap News
Federal Reserve (Fed) Chairman Jerome Powell reaffirmed the austerity shift to respond to inflation by saying, “If high inflation continues, we will raise interest rates higher than expected.” However, he calmly said that “it will be a long way to normal” and “quantitative austerity (reduction of holdings)” will be “probably in the second half of this year”, alleviating some of the market’s concerns.
“If high inflation persists longer than expected and we have to raise interest rates more over time, we will do it,” Powell said during a confirmation hearing at the Senate Financial Services Committee on Wednesday. “We will use measures to prevent higher inflation from settling,” he said.
Chairman Powell acknowledged the need for ‘quantitative austerity’, which refers to measures to reduce holdings such as government bonds, and said that it could be done earlier and sooner than it did during the 2007-2009 recession. Regarding the timing, he said, “maybe it will start in the second half of this year.” “Now is the time for us to move away from the emergency measures in response to the pandemic and move to a more normal level,” he said, “but it will be a long way to normal.”
In response to Chairman Powell’s remarks, the market accepted that the Fed was putting a difference in the pace of rate hikes and quantitative tightening. Kim Il-hyeok, a researcher at KB Securities, said, “They said they could raise the key interest rate more to prevent inflation from sticking, but they showed less aggressiveness in terms of quantitative austerity. did,” he said. The Dow Jones Industrial Average closed 0.51% higher on the New York Stock Exchange, the S&P 500 rose 0.92%, and the Nasdaq Composite closed 1.41% higher. Thomas Costerg, an economist at Pictech Wealth Management, said, “Chairman Powell wants the financial markets to calmly handle monetary policy.
Chairman Powell stressed the need to focus on price containment for the job market as well.
“High inflation is a serious threat to achieving full employment,” he said. “Without price stability, maximum employment cannot be maintained, so we need to focus on controlling inflation.” “Inflation is far above target. “The economy no longer needs the expansionary policies we’ve taken,” he said.
Chairman Powell, who took office in February 2018 during the time of former President Donald Trump, was re-appointed by President Joe Biden in November last year and attended the hearing today. It is expected that the reappointment will be successful without any difficulties.