Although assessing that the economy is strengthening, Powell did not provide certainty about reducing the balance sheet. The US dollar also weakened.
Jerome Powell's welcoming speech in testimony before the US Senate Banking Committee was considered less hawkish. Although the Fed will normalize policy, there has been no decision to reduce the balance sheet, which amounts to nearly $9 trillion.
In addition, interest rates are expected to rise this year. However, the timing has not yet been determined. In this testimony, Powell tends to refute hawkish comments by other Fed officials about the urgency of a rate hike.
Nevertheless, the figure who was re-appointed to be the head of the US central bank assessed that the US economic recovery had risen quite rapidly despite the emergence of the Omicron COVID variant. Unfortunately, this strengthening is still followed by an increase in inflation due to a surge in demand that is not balanced with the availability of goods.
"We know that high inflation costs money," Powell said in his opening testimony speech. The Fed chairman is committed to tackling rising inflation and preventing it from becoming a permanent problem.
Powell also gave an upbeat outlook for the US employment sector. The labor market is recovering quickly from the blow of the Corona virus pandemic. Although pandemic benefits are starting to be phased out, he is confident that the US labor market will not weaken.
"This is a good time for us to start moving away from the pandemic emergency arrangement, towards a more normal level arrangement," Powell said.
US Dollar Even Down, Wait for US Data This Week
The US dollar weakened because Powell's statement was considered not as hawkish as expected. As of writing on Tuesday (11/January) evening, the US Dollar Index was down 0.32% to 95.64, returning to its December 31 low.
According to Scotiabank's Shaun Osborne, the market thinks that Powell's remarks in his welcoming speech are not enough evidence of a new big move from Powell. "The one that moves the market more will likely appear in the question and answer session, or even later when the CPI and PPI data are released this week, depending on their respective considerations," said Osborne.
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