US Federal Reserve Chairman Jerome Powell is due to testify before Congress on Wednesday and Thursday this week, with players in crypto and traditional markets now eagerly awaiting his first comments on the economy following the outbreak of war in Ukraine.
The testimony, which will be given before the House Financial Services Committeemarks the first time in nearly five weeks that the public has heard from the Fed on the economy.
Since his last appearance, when Powell was talking primarily about how the Fed was working to bring down inflation in the United States, the global economic outlook has become much more complex. Among the factors complicating the picture are the heavy sanctions imposed on Russia, the collapse of the Russian ruble and oil prices which have jumped to more than 110 USD per barrel.
“Inflation has persisted longer than we thought,” and we will use our tools to ensure higher inflation “doesn’t take hold,” was one of the things Powell said last time. spoke publicly about Fed policy.
Besides the war in Ukraine, measures against COVID-19 have also been eased in Europe and the United States since Powell’s last appearance – a development that should boost economic activity.
The big question the market is now asking for Powell is how much of the fallout from the war will impact the Fed’s planned monetary policy tightening. The next scheduled US interest rate adjustment is set for March 16 and the central bank is expected to raise rates by 0.25%.
Speaking at a webinar on Tuesday, Atlanta Fed Chairman Raphael Bostic said the Fed’s job has now become more difficult.
“Our hard work has become much harder. The energy changes a lot. The ability for people and goods to move across Europe – looks like this is going to change a lot. This has implications for supply chains and a whole host of things. There are a lot of things we need to understand,” Bostic said, by Reuters.
Since the start of the war in Ukraine, yields on 2-year US Treasuries have risen from 1.6% to 1.36% on Wednesday at 10:00 UTC. Falling bond yields could further complicate the Fed’s efforts to raise market rates to counter inflation.
Additionally, there are fears that a rising interest rate environment combined with higher consumer prices, and in particular higher energy prices, could push the economy into what is known as stagflation – a combination of economic stagnation and inflation.
“We are entering a period of stagflation. The question is, does [Powell] focuses more on ‘deer’ or does it focus more on ‘flation'”, Peter Boockvar, Chief Investment Officer at Bleakley Advisory Group, Recount CNBC in a comment yesterday.
As of 10:29 UTC, bitcoin (BTC) stood at $44,156, up 2.3% in the last 24 hours and 15% in the last 7 days.
Powell’s testimony is scheduled to begin at 10:00 a.m. ET (15:00 UTC) today.
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