Jerome Powell's Commitment to Reducing Inflation: Balancing Economic Growth Against Political Setbacks

By: Miguel A. Rodriguez

09:53, 11 January 2023

main image (15).jpg

The Federal Reserve Bank of New York reported that one-year inflation expectations fell to 5.0% in December from 5.2% the previous month. 

The market was awaiting comment from Jerome Powell until just before the opening of Wall St. Investors feared that the Federal Reserve Chairman might make "hawkish" comments that would negatively impact risky assets. The latest statements by Fed officials were similar, emphasizing the need to keep rates high for an extended period of time and even going against the position of investors in the fixed-income market, who currently anticipate or expect less aggressive rate cuts in the near future. 


A confirmation of this restrictive bias by the Fed's president in a public appearance at the Riksbank's International Symposium on Central Bank Independence in Stockholm could have market ramifications. The indices began the day in the red, and the dollar corrected slightly upward, a preemptive move to close short-term positions awaiting events. But after Powell's intervention at the central bankers' panel in Stockholm, everything went back to square one. 


Jerome Powell, Chairman of the Federal Reserve, did not comment on upcoming monetary policy decisions. The intervention was limited to broader issues, such as the independence of central banks, which must be free of political influence when making difficult monetary policy decisions. 


Fed Chairman Jerome Powell said the central bank is firmly committed to reducing inflation, even though interest rate hikes to curb economic growth could lead to political setbacks. So far, nothing new has emerged, and the most important thing for the market is that the speech was not aggressive, which could have been interpreted negatively by investors. 


After this event, the market lost momentum due to the lack of catalysts and the wait for Thursday's most relevant economic data to be published tomorrow. The North American CPI will undoubtedly be the number that sets the course for financial assets (indices, currencies, and fixed income) in the following days. Data equal to or less than expected will increase risk appetite (bullish indices, falling dollar, and market interest rates with downward pressure) and the opposite if the data for consumer price indices surprises upwards.  


In the commodities market, it is worth noting the performance of Natural Gas, which has continued to sell off under strong downward pressure mainly due to favorable weather conditions globally, with notably higher temperatures for this time of year. Technically it is heavily oversold and leaning on a major support area around 3.60. So, a corrective movement of a technical nature shouldn’t be ruled out. 

Sources: Bloomberg, Reuters 

Share this article

The information presented herein is prepared by and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only and as such it has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is not subject to any prohibition on dealing ahead of the dissemination of investment research.                                                                                                                            Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience, or current financial situation.Therefore, Key Way Investments Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance and forecasts are not reliable indicators of future results.