Mr. Powell Goes to Washington

March 7, 2024

Federal Reserve Chairman Jerome Powell testified in front of the House Financial Services Committee for two days this past week. These briefings have become “must see TV” for market watchers as the question of 2024 remains – will the Federal Reserve cut interest rates this year, and if so when and by how much?

Powell very much “stuck to the script” during his commentary on Capital Hill. Here are some highlights:

1.) Inflation focused – As if on repeat, Powell affirmed that rate cuts won’t occur until officials “have gained greater confidence that inflation is moving sustainably” towards 2%. He went on to say that the inflation prints don’t necessarily need to be lower than what has been reported as of late – but that they just need a few more of them to be confident in the trendline

2.) Data dependent – “We want to see a little bit more data so that we can become confident” Powell stated. Without a doubt, upcoming jobs reports and inflation readings will be closely watched

3.) Watching strength – Powell acknowledged that the economy and labor markets have remained very strong. He didn’t rule out cuts because of that strength but noted that the upward track of the economy reinforces the need to be thoughtful about rate cuts

4.) Fine line – there is little doubt the timing and extent of rate cuts is a fine line to walk – especially since many believe the Fed was late to the party when it came to raising rates. Powell acknowledged the risks of moving too soon – and also moving too late – “Reducing policy restraint too soon or too much could..ultimately require even tighter policy to get inflation back to 2%. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment”

5.) Recession watch – Naturally, the Fed is monitoring various data to determine if the economy is heading towards a recession. Powell noted he say no evidence that the US was at risk of falling into a recession

6.) Cuts coming – Powell did state that the Federal Reserve is on track to cut rates in 2024. But he stopped short of saying when – or by how much

7.) Bank regulation – Given the recent events at New York Community Bancorp, discussion also focused on pending banking regulation. Powell didn’t give any specific comments but did note that the pending regulation (Basel III) likely needed additional review and revisions

In sum, no major surprises from Powell’s time on the hill. Congress members seemed relatively satisfied and perhaps more importantly, so did markets (as rates fell and stocks rose).

Onward we go,

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