Fed Chairman Powell attended the congressional report for two consecutive days, clearly stating that interest rates will be lowered at an appropriate time this year, and discussed the impact of commercial real estate losses on bank risks.
(Previous summary:
Powell opens his mouth: Fed will “appropriately lower interest rates” with four major indices rising together, Nvidia hits new high again)
(Background supplement:
One-week volatility warning: Fed Chairman’s congressional report, non-farm payroll report, Trump expected to be nominated after Super Tuesday)
Table of Contents:
Powell opens his mouth to lower interest rates this year
Powell: The Fed is very aware of the risks of lowering interest rates too late
Powell: Commercial real estate losses will cause “bank failures”
Federal Reserve Chairman Jerome Powell attended the House Financial Services Committee and the Senate Banking Committee hearings this Wednesday and Thursday, respectively, for the semi-annual monetary policy report. He revealed some important information, which will be summarized in this article.
First and foremost, what drew the most market attention is that Powell clearly stated in both meetings that “interest rates may be appropriately lowered at some point this year.” However, he emphasized that this action should be based on the steady progress of the economy towards the Federal Reserve’s set goals.
Powell also pointed out that he believes the Federal Reserve will not make the mistake of delaying too long in responding to economic changes as it has in the past (he admitted that the Fed’s response to inflation during the COVID-19 pandemic was delayed).
When asked by Senator Sherrod Brown (D-Ohio) whether the central bank is now facing the opposite situation, waiting too long to lower interest rates and risking unemployment for American workers, he expressed confidence that the Federal Reserve is actively addressing this issue. Powell stated:
This statement expresses Powell’s confidence in gradually adjusting the monetary policy stance. He made similar comments in the House of Representatives on Wednesday:
He stated that the Federal Open Market Committee (FOMC) will continue to “assess forthcoming data, evolving outlooks, and risks to the outlook.”
In addition to concerns that high interest rates could harm the economy, analysts have also pointed out that the current U.S. debt is very severe, and lowering interest rates is a necessary action.
Powell: Commercial real estate losses will lead to “bank failures”
During the Senate Banking Committee hearing on Thursday, Powell also responded to the issue of increasing non-performing loans in commercial real estate. He expects that this could lead to some bank failures but will not pose a risk to the entire system.
He further explained:
Furthermore, Powell also stated that considering the sudden loss of certain banks’ deposit bases during the banking crisis in March 2023, the Federal Reserve is considering innovative approaches regarding “liquidity rules.”
In response to questions about proposals to increase bank capital requirements, he pointed out that the Federal Reserve will “not hesitate” to abandon specific draft rules, even the entire proposal put forward last year, because officials are committed to reaching a consensus on this matter. He expects that a final set of rules will be issued this year.