The testimony of Fed Chairman Jerome Powell yesterday has once again confirmed what had already been speculated in advance, namely that the Fed will strive for a normalization of monetary policy.
The Fed Chairman spoke of ending the QE program in March and also of interest rate hikes. In the interest rate, he was nevertheless once again more hesitant than previously thought after he left the timing open when this should happen. He literally said “… raising rates over the course of the year…,” which once again left the public in the dark.
In addition, he also talks about the Fed balance sheet, which has surprised many since the minutes of the last Fed meeting were released. But again, he spoke only of ” perhaps later this year we will start to let the balance sheet run off.” Arguably a statement to reassure the markets.
On the subject of inflation, the Fed Chairman was probably more to the point, recognizing that inflation figures are further above target and that the public can no longer approve of this monetary policy. He said: “Inflation is running very far above the target. The economy no longer needs or wants the very accommodative policies we have had in place.”
In the end, statements about what could happen remain, but once again no exact time frame, except for the QE story.
Gold was able to make decent gains after the statement and jumped back above $1,820 per ounce. Also, crude oil rose again to over $80 and gained over 3%.
The stock markets that had fallen before the statement could rise again yesterday. The S&P 500 rose 0.92%, DOW rose 0.51% and NASDAQ rose 1.41%.