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Fed Chair Powell: ‘We are moving expeditiously’ to bring down inflation

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Yahoo Finance's Brian Cheung breaks down Fed Chair Powell's opening statement for his testimony before the Senate Banking Committee.

Video Transcript

BRAD SMITH: The Fed chair Jerome Powell, of course, he's going to be testifying today in front of the Committee on Banking, Housing, and Urban Affairs, that the Senate Committee. And then tomorrow, that conversation going to continue with the House Financial Services Committee as well.

JULIE HYMAN: So this is what we used to call the Humphrey Hawkins testimony. It's the semi-annual testimony that comes from the Federal Reserve chair. So this is not special because of economic conditions, but he is going to get a lot of questions on economic conditions here.

And also, even as we see stocks pull back, we are seeing yields fall relatively sharply here this morning, perhaps on concerns about economic growth, because we've talked about this sort of delicate balance, right, in the bond market between, on the one hand, a Fed that's raising rates, which normally would push up yields, and on the other hand, concern over slowing economic growth.

As we've been talking about, the Fed chair is scheduled to speak, really, any moment now. And in some of his commentary, he's got this testimony that's being released. And among other things, he says the US economy is very strong and can handle tighter policy. Our Brian Cheung has been looking at that testimony. I have a feeling there might be some skepticism from some of the senators on that particular comment.

BRIAN CHEUNG: Yeah, certainly, Julie. Obviously, a lot of attention as the Fed and the government at large try to wrangle with inflation. But the Fed chairman releasing his prepared remarks that he's about to deliver to the Senate Banking Committee in a few moments, as you mentioned. Pretty hard on inflation. Said, we are moving expeditiously to use the tools that they have to take inflation down. Said, quote, it will take-- "and the resolve it will take to restore price stability on behalf of American families and businesses."

The Fed looking for, quote, "compelling evidence" that inflation is moving down. Keep in mind the Fed's target on inflation is 2%, as measured by their preferred measure, which is the personal consumption expenditures. Quote, "We anticipate that ongoing rate increases will be appropriate. The pace of those changes will continue to depend on the incoming data and the evolving outlook for the economy." So translation-- Fed wants flexibility. We saw that very clearly when the Fed made that abrupt pivot last week towards a more aggressive 0.75% interest rate increase.

Another interesting line here, quote, "We will strive to avoid adding uncertainty in what is already an extraordinarily challenging and uncertain time," perhaps referring to any sort of doubt on the credibility of the Fed after they made that pivot last week. But what's interesting is that in the prepared remarks that the Fed chairman plans on delivering to the Senate today, no mention of the word, "unconditional." That did get a lot of attention in the Fed's monetary policy report, which is released alongside these prepared remarks ahead of any sort of Humphrey Hawkins testimony.

And the word, "unconditional," showed up in that report, which was actually released last week. That, at the time, said the committee's commitment to restoring price stability, which is necessary for sustaining a strong labor market, is unconditional. But that word did not appear in the Fed chairman's remarks. So unclear if he's going to use that word today. That was a very strong word that a lot of markets held on to last week. So we'll see what he has to say when that testimony kicks off shortly in the Senate Banking Committee, guys.

BRAD SMITH: Hey, Brian, while we have you, I mean, the most recent CPI report that certainly caught the attention of the markets ahead of the Fed's decision. And that was enough to also move the Fed to say, you know what? Maybe 75 basis points is the direction that we should go.

And Fed Chair Jerome Powell acknowledging within this testimony today that inflation has obviously surprised to the upside over the past year. And further surprises could be in store, also saying that we'll need to be nimble in responding to incoming data and the evolving outlook. You know, how do you expect markets to latch onto that nimbleness that the Fed is saying that they're going to continue to have?

BRIAN CHEUNG: Yeah, well, I think that when it comes to just the market interpretation of all of this, you can make the argument that based off of the bond yield movements, that any sort of surprise from the Fed in terms of policy moves was already priced in after the Monday pivot from the Fed last week towards that more aggressive 75 basis point hike. Now the Fed chairman taking 100 basis points off the table in the press conference last week was very critical to essentially setting a ceiling for where Fed policy could go in the future meetings.

And even just in our conversation with Philadelphia Fed President Patrick Harker about 30 minutes ago, it seems like the indication is that really the debate is between 50 and 75, at least from the vantage point of the Philadelphia Fed president. At least right now, it could be skewed more towards that 50 basis point hike if, indeed, demand does show signs of softening, that inflation peaks again, which the jury's still out on that one. But when it comes to, again, what the Fed's next steps are, you could argue that some of that uncertainty has already been removed because they already frontloaded the hike last week.

But of course, as the data dependency kind of implies, as there is the risk of the Fed actually slowing its pace of aggressive rate hikes, if things and conditions deteriorate even further, they could also go up to the upside if inflation, indeed, shows signs of not peaking, which could, indeed, bring back a more aggressive path in the future. So again, something worth watching. And I think the Fed is going to lean much more into that word, "nimble," as we do get through the other four remaining meetings of this year.

BRAD SMITH: All right, Yahoo Finance's own Brian Cheung breaking down the latest from the Fed. A big day for these conversations for sure.

JULIE HYMAN: A big day for Brian Cheung! My goodness. Patrick Harker, doing the testimony, anchoring the 11:00 AM show. Whew, he gets the MVP Award today--

BRAD SMITH: Done deal.

JULIE HYMAN: --Mr. Cheung.