Powell: Progress made in inflation control, but tight monetary policy still needed.

Federal Reserve Chairman Powell said at a congressional hearing on Wednesday that the Fed has made significant progress in controlling inflation, but has not fully reached its target, so it needs to continue to maintain a restrictive monetary policy, that is, to maintain high interest rates. At the hearing of the House Financial Services Committee, Powell said, "We are close to our target, but not fully there yet." He mentioned that inflation fell to 2.6% last year, indicating significant improvement, but has not fully reached the Fed's target of 2%, so the current high-interest rate policy needs to be maintained. The latest Consumer Price Index (CPI) data shows a 0.4% increase in core CPI (excluding food and energy) in January, the largest increase since March last year. This data is higher than market expectations, indicating that inflation still has stickiness. As a result, expectations for interest rate cuts by the Fed have cooled further in the market. Interest rate swap market data shows that traders now only expect one rate cut (25 basis points) this year, while before the CPI data was released, the market originally expected at least two rate cuts. Despite inflation data exceeding expectations, Powell emphasized that the Fed will not adjust policy due to one or two better-than-expected data points: "We will not get excited because of one or two good data points, nor will we panic because of one or two bad data points." The Fed's tightening policy has significantly brought down the inflation rate from its 40-year high in 2022, but the continued rise in prices is still burdensome for American people. The accumulated price increases over the years have made it difficult for many families' wage growth to keep up with the rising cost of living. Powell has been committed to controlling inflation without significantly affecting economic growth and employment, achieving a so-called "soft landing." Historical experience shows that achieving a soft landing after a surge in inflation is extremely rare, so if the Fed can successfully control inflation and maintain economic stability, it will be a major policy victory. He also mentioned that the Fed's policy decisions may be influenced by U.S. government trade policies. President Trump's recent announcements of tariffs, tax policies, and immigration policies may further drive up inflation, making the Fed's task more complicated. Trump's recent tariff measures include: imposing a 25% tariff on steel and aluminum imports; maintaining a 10% tariff on all Chinese imports; planning to impose tariffs on Canadian and Mexican goods but temporarily delaying execution; and threatening to impose retaliatory tariffs on countries that impose tariffs on American products. Powell said the Fed would not comment on Congress or the government's policies, but if new policies have a significant impact on the economy, the Fed may adjust its interest rate policies. He noted, "The fundamentals of the U.S. economy remain strong, but some policy uncertainties still exist. We need to wait and see the specific impacts of these policies before deciding how to respond." Earlier on Wednesday, Trump posted on the social media platform Truth Social, calling on the Fed to cut rates soon and stating that rate cuts would help coordinate with the upcoming tariff policy. However, when asked about Trump's comments, Powell refused to comment. At the hearing, Powell also expressed his views on bank regulation policy. He pointed out that before the establishment of the Vice Chair for Supervision at the Fed by Congress, bank regulation policy was relatively stable, and the establishment of this position may lead to increased volatility in regulatory policy. Currently, Fed Vice Chair for Supervision Michael Barr has announced that he will step down on February 28 or earlier, but will continue to serve as a Fed Governor. Powell's comments have sparked speculation that the Fed may adjust its regulatory framework to reduce policy uncertainty. In addition, Powell said the Fed is reviewing its long-term policy framework, with the latest evaluation expected to be completed by the end of the summer this year. When asked if the policy framework set in 2020 limited the Fed's flexibility in addressing inflation, Powell stated clearly, "It did not."