Powell: "No Rush to Raise Interest Rates... Inflation Will Decline"

Progressive Lawmakers Positively Assess Paweol's Role... Highlight Possibility of Reappointment

[Image source=EPA Yonhap News]

[Asia Economy New York=Special Correspondent Baek Jong-min] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), emphasized that while inflation concerns are greater than expected, the rate of increase is likely to slow down, and expressed his stance of not rushing to raise interest rates.

Chairman Powell made these remarks on the 22nd (local time) during a House hearing. He explained, "Most of the inflation increase occurred in areas directly affected by the resumption of economic activities, such as used cars and trucks," and added, "Those prices will stop rising and eventually start to decline."

However, Powell also stated, "The inflation increase could be larger and more persistent than we anticipated." This means that uncertainties related to the COVID-19 situation cannot be ruled out. Nevertheless, he strongly emphasized that the super inflation of the 1970s will not occur.

He also stressed patience regarding interest rate hikes. Powell said, "We will not preemptively raise interest rates until we see concrete evidence of inflation or other imbalances."

Last week, the Fed released a dot plot indicating an interest rate hike in 2023, one year earlier than previously expected. During the press conference at that time, Powell also explained that the dot plot does not confirm an interest rate increase.

After the dot plot release, James Bullard, President of the St. Louis Fed, raised concerns in the market by advocating for an interest rate hike in 2022.

Powell acknowledged that the federal government's expanded unemployment benefits policy has affected employment recovery, stating, "Workers are trying to find new jobs, and the process may take more time."

He estimated that strong job creation could be seen after the expanded unemployment benefits policy ends in September.

Powell's Reappointment Possibility 'Emerges'

During the hearing, a moment that could hint at Powell's reappointment caught attention.

House Financial Services Committee Chairwoman Maxine Waters positively evaluated Powell's support for the Biden administration's active fiscal policy.

Bloomberg News reported that Waters' stance may reflect the opinions of the progressive wing of the Democratic Party regarding Chairman Powell.

Powell's term expires in February next year, and reappointment requires nomination by President Joe Biden. The progressive wing within the Democratic Party has raised the possibility of replacing Powell, who was appointed by former President Donald Trump.

Because of this, the change in the progressive wing's stance can be linked to Powell's reappointment possibility. The market expects that if Powell is reappointed, the Fed will maintain the current monetary policy, but if not, considerable turmoil is inevitable.

Following Powell's testimony that day, the U.S. financial market showed stability. The 10-year U.S. Treasury yield slightly fell to 1.465% compared to the previous day. Major indices on the New York Stock Exchange also closed with expanded gains.