On Wednesday, March 24, Federal Reserve Chairman Jerome Powell and U.S. Treasury Secretary Janet Yellen appeared before the U.S. Congress for a second day of hearings to receive quarterly questioning from the Senate Banking Committee on the central bank and Treasury’s efforts to respond to the New crown outbreak.
Powell reiterated testimony from yesterday’s first day of hearings that the Fed will continue to support the economy until the recovery is more robust and that “the recovery is far from complete and the Fed will continue to provide the support the economy needs for as long as it needs to.”
Some analysts pointed out that although the United States status of the most important of the first two economic policy makers to send a similar message that the economy is ready for a strong recovery, but the revitalization of the labor market will still take Time, Powell today more focused on affirming the achievements of the economy and the labor market has.
During his speech, the Nasdaq was heard to stop falling and turn up, V-shaped rebound, after once falling 0.67%, the U.S. broad market indexes collectively expanded gains. Semiconductor sector ETF rose 1.5%, applied materials rose more than 7%; Intel‘s intra-day gains narrowed to 0.28%, once up more than 6% at the beginning of the day. Apple fell 0.7%, tesla narrowed to 0.2%.
Powell said the U.S. economy is expected to grow at a strong rate in 2021, and the Fed’s relatively modest expectation of a drop in the unemployment rate this year actually obscures the “very desirable” progress in labor market improvement.
He said the labor force participation rate is rising, that is, people who are not currently counted in the unemployment rate re-enter the labor market, will make the unemployment rate rise, “which is a very desirable result.
At last week’s FOMC rate meeting, the Fed kept its benchmark interest rate at a near-zero record low and its $120 billion monthly quantitative easing of debt buying unchanged, with the unemployment rate expected to fall to 4.5 percent this year from 6.2 percent in February, still higher than the 3.5 percent before the outbreak in February last year.
The Fed also raised its economic growth forecast strongly to 6.5% this year, the fastest growth rate since 1983, in contrast to last year’s status quo, which fell into contraction due to the Epidemic.
Analysis said Powell was therefore able to “look down” on the trend of U.S. bond yields soaring early in the year, as a result of an optimistic outlook.
Today he said that U.S. Treasury yields rose, reflecting investors’ views on the progress of vaccination and economic growth, “the outlook has improved, and the market has a basic Perception of this.”
He argued that the point is that the uptick in U.S. bond yields is in an orderly process, and “I would be concerned if it wasn’t an orderly process or if conditions (in financial conditions) tightened to the point where it could threaten the economic recovery.”
Powell today also reiterated the Fed’s expectation that Inflation will rise “temporarily” this year: “We do not believe that the United States will experience harmful inflation and have the tools to deal with it if necessary.”
He said that prices may rise due to the so-called base effect, the release of spending suppressed by the epidemic and supply chain bottlenecks will also bring some upward pressure on prices, but “by definition, the word ‘bottleneck’ represents a phenomenon that is temporary:”
“In the longer term, we believe that the inflation dynamics observed globally over the past 25 years have remained largely unchanged, namely that we have a world of oversupply and very low inflation. We don’t think that dynamic is going to go away overnight, and it’s not going to go away.”
Powell also praised the strength of the Biden administration’s massive fiscal stimulus to support the economy, saying the administration avoided the worst possible outcome in an epidemic-induced recession through aggressive spending and ultra-low Fed rates. U.S. Treasury Secretary Yellen also said it was “appropriate” that a surge in temporary government spending was needed to respond to the crisis, without the need to pay huge amounts for it in a low-interest rate environment.
In response to concerns from senators that the stimulus would lead to a surge in consumer spending, superimposed on an improving economy that could trigger inflation, and that the ultra-loose Fed would be too slow to respond to higher prices, Powell countered that fiscal stimulus would not have a particularly large or lasting impact on inflation, and he stressed that central bank policymakers could act to ease rising price pressures if needed.
The market was concerned that Powell might be asked about the decision not to renew the SLR waiver, which would no longer ease capital requirements for large banks, but that question did not come up in today’s question-and-answer session, with Powell saying yesterday that he expected to put forward proposals to address the issue “relatively soon. He simply said today that the leverage ratio of community banks is an issue that the Fed will be watching closely.
Interestingly, the U.S. Senate was scheduled to take a break from 00:00-00:30 a.m. Beijing time on the 25th, Powell requested to go out at 00:15 and said he would return to the hearing as soon as possible, but until 00:35, Powell still did not appear in front of the cameras of the teleconference, Senate Brown then announced the end of the March 24 hearing.
Long-end U.S. bond yields have surged since the beginning of the year, and investors fear this could spur the Federal Reserve to raise interest rates early or cut bond purchases, triggering turmoil in highly valued risk assets, especially U.S. tech stocks.
Yesterday in the House Financial Services Committee hearing, when asked if they are worried about the future with the reduction of fiscal stimulus and the withdrawal of loose monetary policy, the market will be strongly turbulent, Yellen admitted that “from the historical indicators, asset valuations are indeed high”, Powell also said that “some asset prices are somewhat high”.
Sensitive to fiscal and monetary policy winds, U.S. stocks fell significantly in the hour and a half before the close on Tuesday, with the S&P 500 closing down 0.76% and the Nasdaq, representing technology stocks, closing down 1.12%. Meanwhile, international oil prices plunged more than 6%, with WTI immediate-month futures falling nearly 13% from the stage high of $66.09 on March 5 and entering a technical level consolidation range, according to Dow Jones Market Data.
Recent Comments