Federal Reserve Chairman Jerome Powell appeared before Congress on Tuesday for the first day of his biannual testimony on monetary policy. In the conversation, the two focuses were US inflation and the country’s basic interest rate Addressing a panel of Senate legislators, Powell assured that the Fed is committed to reducing inflation. To meet this target, the Fed will use “all means”, that is, it may even continue to raise interest rates. At the last meeting, the Fed defined an interest rate increase of 0.5%, in line with market expectations. But Powell’s speech showed the authority could ramp up increases again if inflation doesn’t ease. During Powell’s speech, the lines reverberated in the cryptocurrency market through strong volatility. Bitcoin (BTC), for example, dropped as low as $22,130 during the speech, but then recovered and is now operating at stability again.
“If necessary, we will raise interest rates”
Powell made it very clear that the Fed would continue its campaign of interest rate hikes until it saw clear indicators that inflation was on target. In the US, the inflation target set by the Fed is 3%, but the rate for the last 12 months is 6.4%. Therefore, the authority began to act with strong interest rate increases to contain the rise in prices. In less than a year, the basic rate in the US rose from 0% to the current 4.5%, which is in line with the pledge to fight inflation. Powell emphasized that the general state of the economy is positive, with a robust job market and constantly growing demand. These factors tend to raise inflation expectations, which put pressure on the Fed for further increases, something Powell has not ruled out. “Restoring price stability will likely require us to maintain a tight monetary policy stance for some time,” said the Fed chairman. The Fed’s goal is clearly to bring inflation back to 2% over time. While there is debate as to whether the current inflation target is compatible with the US situation, the Fed has no plans to raise the target. Instead, the Fed will continue to anticipate the need for further interest rate hikes. At the same time, the Fed plans to sell assets in the market and reduce its balance sheet.
Speech causes volatility
The Fed chairman emphasized the need to restore price stability. This, in turn, would pave the way for maximizing employment and maintaining long-term price stability. “We will stay the course until the job is done,” added Powell. Powell also mentioned cryptocurrencies in his speech on Capitol Hill. In that vein, he said the Fed is “watching” the market closely as a result of the ongoing turmoil. In fact, turbulence marked the markets after Powell’s speech. The US stock market fell after the speech: major indexes such as the S&P 500, Dow Jones and Nasdaq 100 lost up to 1%. The cryptocurrency market also suffered losses, with Bitcoin price even dropping 1.8% in the last hour and approaching $22,100. However, the market soon recovered and the price returned to the levels recorded during the morning.
