Fed chairs Powell's testimony ends. Stocks up. Yields down and USD lower. - ForexLive

Fed Chair Powell's Testimony Summary:

Economic Outlook and Policy Rate Adjustments

• The Federal Reserve does not foresee reducing the policy rate until there is greater confidence that inflation is moving sustainably toward the 2% target.
• A possible dial-back of policy restraint could occur later this year, with the policy rate likely at its peak for this cycle due to uncertain economic outlook and unassured progress toward 2% inflation.
• Incoming data, evolving outlook, and risk balance will be closely assessed, acknowledging risks of adjusting rates too early/fast or too late/little.
• Notable progress has been made toward the Fed's dual mandate over the past year, with inflation easing substantially despite being above 2%.

Rates and Inflation Confidence

• The Fed seeks more data to gain confidence in controlling inflation, emphasizing the importance of a cautious approach given the economy's strength and tight labor market.
• There's an anticipation that housing services inflation will decline.

Capital Rules and Basel 3

• No decisions have been made on proposed capital rules, but significant changes to the Basel 3 proposal are expected.
• The Fed is in the initial stages of deciding its approach to Basel 3, considering the feedback received, which has been unprecedentedly voluminous.

Economic Growth and Risk of Recession

• Continued solid growth is observed, with no significant near-term recession risks identified.
• The labor market remains tight and strong, supporting the pursuit of a soft landing to maintain economic growth and progress on inflation.

Commercial Real Estate and Banking Sector

• Commercial real estate risks are deemed manageable, with ongoing efforts to ensure banks can handle potential losses, which could persist as a challenge for several years.
• Banks with high concentrations in commercial real estate are expected to face losses, emphasizing the seriousness of the issue in certain locations.

Future Rate Adjustments and Economic Developments

• If the economy evolves as hoped, significant rate reductions could be expected in the coming years, contingent on witnessing more favorable inflation readings.
• The Fed is prepared for potential surprises in the economy's next chapter, indicating a readiness to adapt policy in response to unforeseen developments.

Technology and Labor Force

• A focus on AI's implications for the economy and labor market, with its potential to either augment or replace labor, remains a point of attention.
• Immigration and labor force participation have been key contributors to strong economic growth in 2023, with optimism for sustained productivity gains.

In summary, Fed Chair Powell's testimony highlighted a cautious yet optimistic outlook on the economy, emphasizing data-driven policy decisions, the management of inflation towards a 2% target, and the adaptability to evolving economic conditions and challenges such as commercial real estate risks and the impact of technological advancements.

At the conclusion of his testimony:

• Dow was up 178.58 points or 0.46%
• S&P index was up 41.30 points or 0.81%
• NASDAQ index was up 156.28 points or 0.98%

In the US debt market:

• 2-year yield 4.536%, -1.5 basis points
• 5-year yield 4.099%, -3.9 basis points
• 10-year yield 4.098%, -3.9 basis points
• 30-year yield 4.244%, -3.0 basis points

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2024-03-06 18:09:00Z
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