Fed Chairman Powell attended consecutive congressional hearings this week, clearly indicating that interest rates will be lowered at an appropriate time this year, and discussed how losses in commercial real estate will pose risks to banks.
(Previous Summary:
Powell opens up: Fed is likely to “appropriately lower interest rates”; four major indices rise together, Nvidia hits new high.)
(Supplementary Background:
Weekly Volatility Warning: Fed Chairman’s Congressional Report, Nonfarm Payrolls Report, Trump Expected to Get Nomination after Super Tuesday)
Table of Contents
Powell opens up on interest rate cuts this year
Powell: The Fed is well aware of the risks of delaying interest rate cuts
Powell: Losses in commercial real estate will lead to “bank failures”
Federal Reserve (Fed) Chairman Jerome Powell attended the House Financial Services Committee and the Senate Banking Committee hearings this Wednesday and Thursday, respectively, for the semi-annual monetary policy report. He revealed important information during these meetings, which will be summarized in this article.
First and foremost, what attracted the most attention from the market was Powell’s clear statement in both meetings that “there may be an appropriate interest rate cut at some point this year,” but he emphasized that this action should be based on the economy steadily moving towards the Fed’s set goals.
Powell also pointed out that he believes the Fed will not make the mistake of delaying too long in responding to economic changes as it has in the past (he admitted that the Fed’s response to inflation during the COVID-19 pandemic was delayed).
When asked by Senator Sherrod Brown (D-Ohio) whether the central bank is now facing the opposite situation of waiting too long to lower interest rates, risking American workers’ unemployment, he expressed confidence that the Fed is actively addressing this issue. Powell stated:
This statement reflects Powell’s confidence in gradually adjusting monetary policy. He made similar comments during his appearance in the House on Wednesday, stating that the Federal Open Market Committee (FOMC) will continue to “assess forthcoming data, changing outlooks, and risk balances.”
In addition to concerns that high interest rates will harm the economy, analysts have also pointed out that the current U.S. debt situation is very severe, and lowering interest rates is a necessary action.
Powell: Losses in commercial real estate will lead to “bank failures”
During the Senate Banking Committee hearing on Thursday, Powell also responded to the issue of increasing non-performing loans in commercial real estate. He expects that this may lead to some bank failures, but it will not pose a risk to the entire system.
He further explained:
Furthermore, Powell also stated that considering the sudden loss of certain banks’ deposit bases during the banking crisis in March 2023, the Fed is considering innovative approaches to “liquidity rules.”
In response to questions about proposals to increase bank capital requirements, he pointed out that the Fed will “not hesitate” to abandon specific draft rules, and even the entire proposal put forward last year, as officials are committed to reaching a consensus on this matter. He expects that a final set of rules will be released this year.