The Senate Banking Committee received its semiannual monetary policy report from Federal Reserve Chairman Jerome Powell on Tuesday morning, and even he couldn't hide the stark reality of America's economy under the Biden administration's leadership.
"High inflation is causing significant hardship," Powell said in his prepared testimony before reiterating the Fed's goal of bringing inflation down to just two percent. He added that the Fed had "covered a lot of ground" already in its efforts to squash inflation by raising interest rates, but warned the full effect of previous interest rate hikes are "yet to be felt."
Still, Powell emphasized that the Fed still has "more work to do" to achieve its goal of two percent inflation and lamented that the "softening trends" seen toward the end of 2022 ended up "partly reversed" as seen in economic reports for January 2023. Powell accurately noted that "inflationary pressures are running higher" than economists had expected.
As Townhall reported last month, numbers seen in January's Consumer Price Index, Producer Price Index, and PCE Price Index all showed inflation ticking upward again and, even worse, accelerating back in the wrong direction despite aggressive interest rate hikes from the Federal Reserve.
Powell told lawmakers on Tuesday morning that wage growth remained in a place where the Fed liked to see it, but noted that "strong wage growth is good for workers, but only if it's not eroded by inflation." Well, as Townhall also covered, the jobs report for January 2023 brought more of the bad news Powell and the Fed didn't want to see. It also showed that wage growth hit 4.4 percent year-over-year, lagging annualized CPI inflation of 6.4 percent by two full percent. As Powell said, that's bad for workers — though you'll never hear President Biden admit as much.
Turning to the monetary policy the Fed expects to implement in 2023, Powell's comments didn't do anything to help Wall Street have a morning in the green.
Saying that the Fed's Federal Open Market Committee has "continued to tighten" its stance by raising interest rates by 4.5 percentage points in the last 12 months, Powell added that the FOMC expects "ongoing increases will be appropriate."
Powell noted again that "it will take time for the full effects of monetary restraint to be realized, especially on inflation." Which explains why inflation accelerated upward at the beginning of 2023 despite the Fed's aggressive rate hikes in 2022 that brought rates to their highest level since the financial crisis of 2007-2008.
Explaining that the Fed "will continue to make our decisions meeting by meeting," Powell warned that the Fed still "has a long way to go" as it continues trying to bring down inflation while still trying to achieve a "soft landing" for the economy. Powell said that process "is likely to be bumpy," casting more doubt on those who still believe such a "soft landing" is possible.
Because inflation remains "stronger than expected," Powell added that the "ultimate level of interest rates is likely to be higher than previously anticipated" by the Fed. In more bad news for Wall Street, Powell said the Fed is "prepared to increase the pace of rate hikes."
Markets, as noted, soured on Powell's testimony to the Senate Banking Committee. The Dow Jones Industrial Average, S&P 500, and Nasdaq all tumbled as the Fed chairman testified.