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

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Miguel A. Rodriguez
Miguel A. Rodriguez
11 January 2023

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 or cut rates in the near future. 


Therefore, 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. Thus, the stock 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. But, 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 waiting 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 under strong downward pressure mainly due to favorable weather conditions globally, with notably higher temperatures for this time of year, but technically in a situation of extreme oversold and leaning on a major support area around 3.60, so a corrective movement of a technical nature would not be ruled out. 

Sources: Bloomberg, Reuters 






Miguel A. Rodriguez
Miguel A. Rodriguez

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.