The Federal Reserve can't address supply-side issues and it's time "to move away from highly stimulative policy accommodation" in order to address inflation, said Chair Jerome Powell during his testimony discussing semiannual monetary policy in the House of Representatives.
12:33 PM ET: "There may well be a role for well-regulated stablecoins," he said. Such stablecoins may help keep the U.S. dollar as the world's reserve currency, he said.
Update at 10:29 AM: He's in support of a 25-basis point rate hike at the March meeting.
For now, Powell expects the Federal Open Market Committee to proceed as planned. Still, he points out that the committee is "never on auto-pilot." They'll consider how the Ukraine conflict affects the U.S. economy in making their decisions.
10:36 AM ET: If inflation persists, the FOMC would be prepared to take a more aggressive move to increase the rate by 50 basis points at a meeting or meetings, he added. In his statement, as in his answers to Representatives' questions, Powell still expects inflation to subside some later this year as supply constraints and demand ease.
He still expects the central bank policymakers to start raising interests rates in March, according to his prepared statement, but the Ukraine-Russia conflict is making the economic outlook "highly uncertain."
10:38 AM ET: "We will use our tools to add to stability, not to create uncertainty," Powell said. The effect of the Ukraine war on the U.S. rates is "not knowable" yet, he added.
10:41 AM ET: The financial system has enough liquidity to withstand the effects of the Ukraine conflict, he said. "It's hard to say lack of capital is a threat." Rather, the Fed has been on "very high alert" for cyberattacks and has been since late last year.
10:46 AM ET: Market participants appear to be reacting appropriately to the Fed's plans, Powell commented.
"The inflation we're experiencing is nothing like the inflation we've seen in decades," especially in goods inflation, which had been deflationary for ~25 years, he said.
10:56 AM ET: Powell refused to comment directly on companies raising prices, but instead focused on the Fed's levers to affect demand by removing policy accommodation. He said he thinks the Fed needs to start a series of rate increases and let its balance sheet shrink.
11:01 AM ET: Inflation is an issue around the world, Powell pointed out. It's higher in the U.S., because its economy is stronger, he added.
11:11 AM ET. On sanctions: "With big actions like this, there may be large, unintended effects" on the U.S. economy of ousting Russia from SWIFT, Powell said. "It's hard to say what the effects will be over time." He doesn't expect direct effects, but "it's hard to think what the secondary effects would be."
11:32 AM ET: Powell declined to answer whether the Fed is "monetizing" federal debt. He did say that the Fed will return its balance sheet to a size that's more in line with the size of the economy.
11:35 AM ET: The Fed won't use climate stress tests to set capital level for banks or to impose regulatory restrictions, Powell said.
11:50 AM ET: Powell estimates it will take about three years for the balance sheet to get where it needs to be.
11:52 AM ET: The Fed has been watching how Russia-Ukraine war is affecting global markets and dollar funding markets. "Markets are functioning," so the Fed hasn't had to use any of its tools to keep markets functioning, he said.
12:01 PM ET: "We do expect to move our policy rate up" with a series of rate increases this year from the current near zero rate, Powell said. "We do expect that will be appropriate." He also notes that the labor market is "extremely strong."
12:26 PM ET: Powell is optimistic that the Fed can reduce inflation without triggering a recession. "We can achieve a soft landing and it's far more common in our economy than is understood."
1:00 PM ET: Housing prices and rents make up a large chunk of inflation measures, he said. He doesn't expect housing prices to decline, but expects the price increases to get smaller.
Hearing ends at 1:03 PM ET.
Added at 10:54 AM ET: Separately, the Senate won't vote on the five nominees for the Fed on Wednesday, Bloomberg reported. Senator Sherrod Brown (D-OH), chair of the Senate Banking Committee, wants to schedule another round of votes as soon as possible, and is urging Republicans to show up for the vote, a committee spokesperson said.
Earlier, Jerome Powell says Federal Reserve needs to be nimble as economy evolves
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