Fed Chairman Powell focused on inflation, the economy during the confirmation hearing

The hearing of Powell's decision on Powell's appointment comes just one day before the reading of inflation is expected to show

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Federal Reserve chairman Jerome Powell was in a hot seat on Tuesday, testifying before the Senate Banking Committee on his presidential nomination. Coming just one day before the Consumer Price Index reading, which is expected to show a high inflation rate of 7 percent a year, the hearing was dominated by the issue of rising prices and how the Fed plans to respond.

Powell has shown a willingness to raise interest rates and postpone other economic support programs during the crisis as the central bank faces inflation, but noted that rising inflation is not a factor in the current crisis.

Powell expects inflation to remain high “midway” by 2022.

"We know that high inflation is costly, especially for those who cannot afford the high cost of basic services such as food, housing and transportation," Powell said, adding that the Fed's current goal is to keep inflation stable.

He reiterated his earlier position that he expected inflation to remain high “by mid-2022,” adding that adaptation depended to some extent on supply chain liberalization. "That will be a big part of reversing inflation," he said.

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After spending most of the year 2021 pointing to inflation growth as "excessive" - ​​caused by supply chain issues rather than key drivers - the Fed changed its position a few months ago and showed a future track that reverses much of the epidemic policy. to support its implementation to prevent a financial collapse by March 2020.

Powell acknowledged the unprecedented state of both the economic shocks experienced by the epidemic and the unpredictable recovery process. "Monetary policy must be broad-based and forward-looking, in line with the ever-evolving economy," he said.

Finally monetary policy lasted about two years after the Covid-19 epidemic hit the U.S. coast, Powell and other Fed officials argued that lower prices and bond markets needed to be maintained until the labor market recovered from its decline.

"Policy makers are concerned that if we go too fast, it will put the brakes on the economy while we try to put people in the labor market and reopen the resources that are part of the economy," said Brian Vendig, president. of MJP Wealth Advisors.

Now, with 3.9 percent unemployment - despite the historic shortage of staff and active staff participation - Fed officials and members of Congress are reconsidering that reason.

"The question might be, if 3.9 percent is not your first goal of making regular prices, what does it mean?" said David Bahnsen, chief investment officer of The Bahnsen Group.

"It has always been a kind of soft and flexible definition from cycle to cycle," said Ross Mayfield, an investment strategy analyst at Baird. Even before the epidemic, Powell often spoke of the need to embrace the unifying meaning of “full-time” jobs.

“We have a lot of racial and gender inequality, and those challenges continue. With the participation of employees, that gap is not yet fully filled, ”said Eric Freedman, chief investment officer at the U.S. Bank Wealth Management.

Despite the unprecedented economic turmoil caused by the epidemic, Powell was accustomed to enjoying bipartisan support during his tenure, but questions may be heated at times, especially for left-wing senators such as Elizabeth Warren of Massachusetts.

"I expect him not to give up," Bahnsen said, pointing out that pointing to Powell could be a way for developing lawmakers to express themselves in opposition to leaders of President Joe Biden's administration who favored Powell's re-election. "The political tea leaves are gone," he said.

Although inflation is expected to be the dominant factor in the negotiations, other issues Powell may face with questions include the regulation of banking regulation, rules and ethics relating to trading activities performed by Fed officials and whether the central banking mandate should be expanded or not to cover more. issues such as racial justice and climate change. Powell spoke of climate change in his remarks to lawmakers, describing it as one of the many "emerging threats" to financial stability.

Narayana Kocherlakota, a professor and chair of the economics department at the University of Rochester, and former president of the Federal Reserve Bank of Minneapolis, predicted that Powell would also be questioned about Biden's suspended Build Back Better fund and the consequences of that spending. in the current context of inflation.

While even a four-fold increase may increase the borrower's mortgage by a few dollars every month, many households are already struggling to extend their dollars as prices rise.

"It is unlikely that he will express a clear opinion on the ongoing debate on fiscal policy," Kocherlakota said - but he expected members of parliament to focus on the topic no matter why, given the political challenges of both parties in the mid-year elections where GDP is expected to slow. .

While negotiating monetary policy may seem far removed from the financial reality of ordinary Americans, the overpayment on rotating debt is a reality that borrowers must adapt to, experts say.