Powell Sends Stocks Soaring Intra-Day; Here Is A Brief Recap Of Why
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Stocks are soaring following comments from Federal Reserve Chair Jerome Powell, who spoke on the state of the economy and the Fed's plans for future action. In his remarks, Powell addressed a range of topics, including the balance sheet decline, inflation, the labour market, and the impact of the pandemic.
Regarding the balance sheet decline, Powell stated that it will be "a couple of years" before the Fed nears the end of the decline, but he emphasized that the Fed is not actively considering selling securities. Powell also noted that the Fed has not put a dollar number on a balance sheet target.
Powell discussed the state of the labor market, stating that it is currently at least at maximum employment, if not beyond. He attributed the strength of the labor market to the strength of the economy as a whole. He also noted that the pandemic has left a lasting impact on the labor supply in the US, creating a shortage that feels "structural."
Powell also touched on inflation, stating that 2% inflation is a global standard and not something the Fed is looking to change. He noted that a big part of the current inflation is tied to the pandemic shutdown and reopening and expected 2023 to be a "year of significant declines in inflation."
In terms of interest rates, Powell stated that the Fed anticipates that ongoing rate hikes will be appropriate, but they have not yet reached a sufficiently restrictive level. He noted that if incoming data continues to be stronger than expected, the Fed would certainly hike rates further.
Powell also addressed the recent Non-Farm Payroll (NFP) report, stating that it was "certainly stronger" than anyone expected, but emphasized that the disinflationary process has only just begun and will be a long process. He also warned that the process will be bumpy and will require further rate increases.
In conclusion, Powell's remarks indicate that the Fed is closely monitoring the economy and will make adjustments as needed. However, he also emphasized that the process will take time and that the Fed is prepared for a bumpy road ahead. The Fed's forecasts are conditional on incoming data, and they anticipate that ongoing rate hikes will be appropriate in the future.