Powell also poured cold water on the rate cut: it is too early to judge when to ease and prepare for further tightening if needed

Recently, expectations for a Fed rate cut next year have been high, and senior Fed officials have repeatedly poured cold water on expectations that there will soon be a shift to easing.

During a dialogue at Spelman College, Atlanta's liberal arts women's college on Friday, December 1, Powell reiterated the caution of Fed policymakers in a prepared speech, saying that Fed officials remain prepared to tighten monetary policy further if needed. He said:

"So far, the Fed is moving cautiously as the risk of undertightening and overtightening is becoming more balanced. ”

"It's too early to conclude that our position is restrictive enough, or to speculate on when policy might be easing. ”

"If appropriate, we are prepared to tighten policy further. ”

In contrast to the comments made after the Fed's monetary policy meeting earlier this month, Powell commented that the Fed's tightening has "well into" the restrictive zone of policy rates. And at the press conference after the meeting earlier this month, he simply said that the stance of monetary policy is restrictive.

Powell commented that inflation has come down and core inflation is still too high. He said the Fed would stick to its commitment to maintain restrictive interest rates until inflation was on track to come down towards 2%. The recent progress in core inflation must be sustained.

During the Q&A session, speaking about Congress, Powell said that Fed policymakers are always under pressure from members of Congress to support the Fed for fiscal policy of one kind or another, but he told lawmakers that it is critical that the Fed does not do that. To ensure its independence, the Fed must stay away from politics, he said. Powell also said that to make sure lawmakers understand what the Fed is doing, he and his colleagues are now spending more time in Congress than before. Ultimately, it is the Congress that sets the mandate.

In his speech, Powell did not mention the recent rally in stocks and bonds, but commented on the financial environment over a longer-term period. "So far, the normalization of supply and demand has played a key role in the decline in inflation, and the sharp tightening of monetary policy and overall financial conditions over the past two years has played a similar role," he said. ”

Asked what lessons have been learned from the pandemic, Powell replied that it will take years to make a full assessment. In retrospect, the economy has grown much faster than expected. Since the outbreak of the pandemic, the U.S. economy has performed well. Powell said the economy's performance has repeatedly surprised the Fed and forecasters, and that the Fed's tightening did not seem to have had much effect last year, but now the effects of the tightening are being felt.

Powell said that the Fed's monetary policy is at a restrictive level to contain the economy, so the right thing to do is to "let the data tell us what the facts are" and whether the Fed's tightening is enough or needs to do more. Let the data reveal what is the right path. He did not mention whether the data would tell the Fed when it should cut interest rates.

Talking about the dollar, Powell said that the Fed values the role of the dollar in the world. "We are very concerned about international economic flows. "He realizes that this aspect is much more important than he thought when he was a Fed governor. Powell said that "the dollar is the world's reserve currency" and that the standing swap line used during the global financial crisis and during the pandemic "is very important to alleviate financial stress".

Talking about the gap between rich and poor, Powell said that over the past 50 years, the Fed has noticed a widening gap between rich and poor and has collected a lot of data. One positive role the Fed can play in addressing this inequality is by enforcing fair lending laws for housing. At the end of the day, it is not the Fed that has the main tools to address the wealth gap, but Congress. The Fed's first priority is to ensure that banks are "safe and sound."

Powell said the Fed does not have tools to target specific groups. The Fed's mission to promote full employment is defined as inclusive. Policymakers have adopted an inclusive perspective in developing policy frameworks.

Asked how to address volatile inflation, Powell said the Fed's bottom line is that it must restore price stability, which is the cornerstone of the economy, and the Fed's tools are only interest rates and balance sheets. "We're on track to achieve an inflation rate of 2 percent without causing massive unemployment," he said. According to the commentary, this is tantamount to Powell saying that the Fed is on track to achieve a soft landing.

When it comes to artificial intelligence (AI), Powell said the Fed really doesn't know how AI will affect the economy over time. The question is whether AI will help jobs or replace the workforce. In the long run, new technologies will increase productivity, and in the short term it may disrupt the job market. The Fed recently invited six to eight experts to discuss AI, and they were divided on whether AI would boost the economy. In addition, AI tools may have a systemic impact on the banking system. It's too early to judge the overall impact of AI.

When it comes to consumption, Powell is cautiously optimistic about the outlook for consumer spending. He said the strength of U.S. consumers' spending and the duration of the strong spending were surprising. According to the data available to the Fed, GDP growth is slowing.

Regarding the labor force participation rate, Powell said that the Fed does not have a specific target in this regard, and the Fed would like to see the labor force participation rate rise further. He noted that given the aging population, this figure for the labor force will naturally decline. But that can change in any given year. He said the labor force participation rate has not fully recovered to pre-pandemic levels.

Also dampening expectations of interest rate cuts The bond market reaction after Powell's speech on Friday was diametrically opposite to Thursday

Powell's remarks came a day after two Fed officials had already weighed on interest rate cut expectations in Thursday's statement.

Williams, the Fed's "third-in-command" and permanent vote at FOMC meetings during his tenure, said that the Fed's policy interest rate is at or near its peak, and monetary policy is expected to remain restrictive for a considerable period of time. Whether the Fed cuts interest rates or not will depend on the evolution of the U.S. economy and inflation. If inflation persists stubbornly high and prices persist longer than he expects, the Fed may need to tighten further.

San Francisco Fed President Daly, a dovish official who has voting rights at next year's FOMC meeting of the Federal Reserve's monetary policy committee, said the possibility of a rate cut was "not considered" at all. U.S. monetary policy is in good shape, and the Fed should be patient and vigilant. It is too early to tell whether the Fed has completed its current rate hike cycle. It's too early to declare the Fed's victory against inflation. There will be no recession in the United States in the foreseeable future.

On the day of Daley and Williams' speeches, the yield on U.S. Treasury bonds, which had fallen for three consecutive days, accelerated its intraday recovery, with the yield on the benchmark 10-year Treasury note rising by more than 10 basis points at one point, off a two-month low, and the yield on interest-sensitive two-year Treasury bonds did not continue to approach a four-month low.

However, after Powell's speech on Friday, U.S. Treasuries moved in the opposite direction from Thursday, with prices rebounding intraday and yields diving. The 10-year Treasury yield fell below 4.30% to hit a daily low, giving up most of Thursday's gains, and the two-year Treasury yield fell below 4.60%, updating a five-month low, and the intraday decline extended to more than 10 basis points.

Strategists at BMO Capital Markets pointed out in a new report that the outperformance of the US Treasury bond rally throughout November not only reflects the Fed's progress in restoring price stability and the balance between supply and demand in the labor market, but also shows that Fed policymakers acknowledge that the current rate hike cycle is likely to end. Investors have quickly begun to discuss when the Fed will cut interest rates for the first time, and Fed officials are still working on the opposite side of the rhetoric, trying to send a message that rate cuts will not be on the agenda anytime soon.