Powell: Progress has been made in controlling inflation, but tight policies must be maintained

According to the Zhitong Finance APP, Federal Reserve Chairman Jerome Powell stated during a congressional hearing on Wednesday that the Federal Reserve has made significant progress in curbing inflation but has not yet fully reached its target, thus it needs to continue maintaining a restrictive monetary policy, namely keeping interest rates high.

During the hearing of the House Financial Services Committee, Powell said, "We are very close to our target, but we have not fully reached it." He mentioned that last year's inflation rate fell to 2.6%, showing significant improvement, but it has not yet fully reached the Federal Reserve's set target of 2%, so the current high interest rate policy still needs to be maintained.

The latest Consumer Price Index (CPI) data shows that the core CPI (excluding food and energy) rose by 0.4% month-on-month in January, the largest increase since March of last year. This data exceeded market expectations, indicating that inflation remains sticky.

As a result, market expectations for a Federal Reserve rate cut have further cooled. Interest rate swap market data shows that traders now expect only one rate cut (25 basis points) this year, whereas before the CPI data was released, the market originally expected at least two cuts.

Despite the inflation data being higher than expected, Powell emphasized that the Federal Reserve will not adjust its policy based on one or two unexpected data points: "We will not get excited by one or two good data points, nor will we panic over one or two bad data points."

The Federal Reserve's tightening policy has significantly reduced the inflation rate from a 40-year high in 2022, but the continued rise in prices still burdens the lives of American citizens. Years of accumulated price increases have made it difficult for many families' wage growth to keep up with the rising cost of living.

Powell has been committed to curbing inflation without significantly impacting economic growth and employment, achieving what is known as a "soft landing." Historical experience shows that cases of achieving a soft landing after a surge in inflation are extremely rare, and if the Federal Reserve can successfully control inflation and maintain economic stability, it will be a significant policy victory.

He also stated that the Federal Reserve's policy decisions may be influenced by the U.S. government's trade policies. The tariffs, tax, and immigration policies recently announced by President Trump may further drive up inflation, complicating the Federal Reserve's task.

The new tariff measures announced by Trump include: imposing a 25% tariff on steel and aluminum imports; maintaining a 10% tariff on all Chinese imports; planning to impose tariffs on Canadian and Mexican goods but temporarily delaying implementation; and threatening to impose reciprocal tariffs on countries that impose tariffs on U.S. products.

Powell stated that the Federal Reserve would not comment on Congress or government policies, but if new policies have a significant impact on the economy, the Federal Reserve may adjust its interest rate policy. He pointed out, "The fundamentals of the U.S. economy remain strong, but some policy uncertainties still exist. We need to wait and observe the specific impacts of these policies before deciding how to respond."

Earlier on Wednesday, Trump posted on social media platform Truth Social, calling for the Federal Reserve to cut interest rates as soon as possible, stating that a rate cut would help align with the upcoming tariff policies. However, when asked about Trump's remarks, Powell declined to comment At the hearing, Powell also expressed his views on bank regulatory policy. He pointed out that before Congress established the position of Vice Chair for Supervision at the Federal Reserve, bank regulatory policy was relatively stable, and the establishment of this position could lead to increased volatility in regulatory policy.

Currently, the Federal Reserve's Vice Chair for Supervision, Michael Barr, has announced that he will resign on February 28 or earlier, but will continue to serve as a Federal Reserve Governor. Powell's remarks have sparked speculation that the Federal Reserve may adjust its regulatory framework to reduce policy uncertainty.

In addition, Powell stated that the Federal Reserve is reviewing its long-term policy framework and expects to complete the latest assessment by the end of this summer. When asked whether the policy framework established in 2020 limited the Federal Reserve's flexibility in responding to inflation, Powell clearly stated, "No."