On Capitol Hill today, Federal Reserve Chair Jerome Powell gave his semiannual testimony on monetary policy in front of a panel of congressional senators. He assured them that the central bank is committed to lowering inflation and will use all means necessary to achieve this goal.
Powell made it clear that the Federal Reserve will maintain its campaign of rate hikes until it sees clear indicators that inflation is heading towards the Fed’s target of 2%. In addition to vowing to fight inflation, Powell emphasized that the overall state of the economy is positive, with a robust labor market and consistently rising demand.
Inflation has been well above the 2% target, and with the labor market continuing to remain extremely tight, the Federal Open Market Committee has continued to tighten the stance of monetary policy, raising interest rates by 4.5 percentage points over the course of the past year. Powell stated, “Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.”
In order to achieve a posture of monetary policy that is sufficiently restrictive to bring inflation back down to 2 percent over time, the Federal Reserve will continue to anticipate that further increases in the target range for the federal funds rate will be appropriate. The government body is also working hard to reduce the total size of its balance sheet by a substantial amount.
Powell’s core focus was on reestablishing price stability, which would in turn pave the way for maximizing employment and maintaining price stability over the longer term. Additionally, it was pointed out that historical evidence strongly advises against relaxing restrictions before it is appropriate to do so. “We will stay the course until the job is done,” Powell added.
After Powell’s statements, the U.S. stock market experienced a slight decline, with key indexes such as the S&P 500, Dow Jones, and Nasdaq 100 all falling approximately 1%. The cryptocurrency market also suffered losses, with Bitcoin’s price falling by 1.8% in the last hour and is currently trading near the $22,000 mark at the time of writing.
The Federal Reserve has been working to keep inflation under control and has been committed to using their monetary tools to do so. These monetary policy tools have included raising the interest rate as well as reducing the size of their balance sheet. The reason for this is that a high level of inflation can lead to decrease in the overall value of money, which can negatively affect the economy.
The Federal Reserve’s decision to maintain a restrictive posture towards monetary policy is aimed at keeping inflation in check. This approach is particularly important for countries where inflation is high and has been difficult to control.
Overall, Powell’s testimony indicates that the Federal Reserve remains committed to reducing inflation and maintaining a stable economic environment. While there may be some short-term impacts on the stock and cryptocurrency markets, the long-term benefits of a stable economic environment should outweigh any short-term fluctuations.
As Powell stated, “We will stay the course until the job is done.”