Jerome Powell Speaks

The overall economy is what’s on the minds of most Americans and definitely on the minds of traders. With 3 rate hikes in the books and the markets in a technical recession everyone wants to know where we stand as Federal Reserve Chairman Jerome Powell reiterated his commitment to combat inflation, while also suggesting the economy was strong enough to withstand higher interest rates.  “I don’t see the likelihood of a recession as particularly elevated right now,” Powell said, during testimony to the Senate Banking Committee. Powell said there is a risk of a recession because Fed policy is a blunt tool. But he said the economy is strong and consumers and businesses are in “good shape.” “No one is very good at forecasting recessions very far out,” he said.

Investors were digesting comments from Fed Chairman Powell on Wednesday who vowed to bring down inflation through additional rate hikes, while testifying on Capitol Hill. “Nothing really new or groundbreaking was communicated in his [Powell’s] statements and his testimony. And that is an incremental positive in that it just removes the overhanging concern that he’s growing increasingly hawkish with every meeting, which is not really rational,” Keith Buchanan, senior portfolio manager at GLOBALT Investments, said in an interview. The Federal Reserve should make sure that its interest rate increases do not push Americans into the unemployment lines, said Sen. Elizabeth Warren, the Democrat from Massachusetts, in the hearing. “Inflation is like an illness, and medicine needs to be tailored to the specific problem. Otherwise, you could make things a lot worse,” Warren told Powell. “You could actually tip the economy into a recession,” she said.

The July meeting is scheduled for July 26–27, and then the committee won’t meet again until September 20–21. We could very well end up with another 75 Base Point hike on the next fed meeting. In addition to interest rate hikes, the Fed has also started to reduce its $9 trillion balance sheet that includes primarily Treasury and mortgage bonds. In May, Fed Chair Jerome Powell said that he wanted to quickly raise the rate to a level that “neither stimulates nor restrains economic growth.”



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