Powell Attends Congressional Hearing: Fed Emphasizes Rate Adjustments Depend on Inflation and Economic Performance
On February 11th, Eastern Time, Federal Reserve Chairman Jerome Powell attended a hearing at the U.S. Senate Banking Committee, delivering remarks on the current economic situation, monetary policy, and related hot topics. He noted that while U.S. inflation has declined, it remains above the long-term target of 2%, and the economy continues to be robust. Therefore, the Fed remains patient on interest rate adjustments, emphasizing that policy decisions will be based on economic data, outlook evaluations, and risk assessments. He also mentioned that if economic growth persists and inflation does not continue to decline, the Fed may maintain the current interest rates for a longer period; if the economy slows more than expected, they might consider rate cuts.
Fed's Policy Path through 2025: Focus on Inflation and Economic Dynamics
During the hearing, Powell clearly stated that Fed policy will be adjusted according to actual economic conditions. "If inflation does not continue to drop, the Fed might maintain its current restrictive policy longer. If the labor market shows unexpected weakness or inflation falls faster than anticipated, the Fed might moderately ease the policy." He emphasized that the Fed's goals remain full employment and price stability, stating that policy-making will fully account for risks and uncertainties.
Regarding interest rate policy, a senator questioned whether the current "neutral rate" (a rate that neither stimulates nor restrains economic growth) has risen. Powell responded that the current neutral rate is significantly higher than before the COVID-19 pandemic, with many Federal Open Market Committee (FOMC) members also believing the neutral rate has increased.
Market Reaction: US Stocks Shake, Tech Stocks Under Pressure
Following Powell's remarks, the U.S. stock market experienced brief volatility, with the three major indices reaching new intraday lows at one point. By the close, the Dow Jones rose by 0.28%, the S&P 500 saw a slight gain of 0.03%, while the Nasdaq fell by 0.36%. Tech stocks showed a mixed performance, with Tesla falling over 6%, hitting its lowest since last November, and Netflix dropping nearly 2%. Meanwhile, Microsoft, Nvidia, Google, and Amazon experienced slight declines. Conversely, Intel rose more than 6% against the trend, Apple gained over 2%, and Meta saw a slight uptick. Among Chinese concept stocks, the Nasdaq Golden Dragon China Index fell by 1.66%, with NIO and XPeng dropping nearly 7%, Baidu and Li Auto falling about 5%, whereas Alibaba rose by 1.3%.
Tariff Issues: Potentially Raising Inflation
Regarding trade policy, Powell was asked whether significantly higher tariffs could increase inflation. He stated that it is too early to assess the economic impact of tariffs but acknowledged that "raising inflation is one of the possible outcomes of tariffs." He stressed that the Fed would not predict the specific effects of tariffs but would instead base decisions on data.
In addition, on the issue of the Fed's balance sheet, Powell mentioned that the Fed plans to slow the pace of balance sheet reduction and stop the process when the level of bank reserves is above the "ample" standard. He reiterated that quantitative easing (QE) would only be used when rates are close to zero, which is far from the current U.S. interest rate situation.
Responding to Musk's Criticism of the Fed
Recently, Tesla CEO Elon Musk has repeatedly criticized the Federal Reserve on social media, even calling for an audit of the Fed. In response to questions in the hearing concerning the Fed being "overstaffed," Powell denied this claim and emphasized that Fed employees "might be overworked," expressing pride in the dedication of his team.
Furthermore, Musk supports former Congressman Ron Paul's appointment as Fed chairman, aiming to abolish the Fed. Powell, when addressing related questions, stated that the Fed should focus on its responsibilities and avoid getting involved in political disputes.
On Digital Currency and Payment Systems
Regarding stablecoin regulation, Powell indicated that the Fed supports establishing a regulatory framework to protect consumers and is willing to provide technical advice. When asked whether the Fed would issue a central bank digital currency (CBDC), Powell firmly stated, "As long as I am chairman of the Fed, the U.S. will not issue a CBDC."
Additionally, concerning the potential impact of the Efficiency Unit led by Musk visiting the Treasury's payment system, Powell noted that the Fed acts only as the Treasury's "fiscal agent" and does not directly decide on the use of government funds, emphasizing that the payment system is secure.
Looking Ahead: Uncertainties in Rate Adjustments Persist
In summary, Powell's remarks in the hearing reiterated that the Fed will continue its cautious approach on rate adjustments, ensuring that policies do not relax too quickly, causing an inflation rebound, nor tighten too excessively, affecting economic growth. The Fed will closely monitor inflation data, the employment market, and economic performance in its future decisions, adjusting policies flexibly to address future uncertainties.
