Federal Reserve Chairman Jerome Powell repeated his view that high inflation remains a significant threat to the U.S. economy Friday, telling an audience in Washington that the central bank is 'strongly committed' to brining it back to its 2% target.
However, in a nod to the impact of the banking crisis, Powell said that policy rates might not have to rise "as much as it would have otherwise to achieve our goals" due to the impact on credit and lending markets linked to the bank sector stresses.
Speaking during a panel discussion with his predecessor, Ben Bernanke, at the Thomas Laubach Research Conference, Powell said inflation remains far above the Fed's objective and poses what he called a "significant" hardship to Americans, particularly to those 'on the margins of society'.
Speaking to the U.S. banking crisis, whose stresses have eased over the past few weeks following the failure of Silicon Valley Bank, the closure of Signature Bank and the sale of First Republic to JPMorgan Chase (JPM) last month, Powell said that while the Fed has 'separate' tools to address banking supervision and monetary policy, "the tools can be used in either arena" and can "impact each other".
U.S. stocks moved lower in the wake of Powell's comments, as well as reports that debt ceiling talks between Republican lawmakers and the White House stalled, with the Dow Jones Industrial Average marked 145 points lower on the session and the S&P 500 down by around 13 points. The tech-focused Nasdaq was down 42 points.
Benchmark 10-year Treasury note yields, however, eased 6 basis points to 3.642% while 2-year notes fell 10 basis points to change hands at 4.202%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.47% lower at 103.120, a level that still leaves it near the highest in two months.
The event marks Powell's first public appearance since the Fed's last policy meeting on May 3, when the central bank lifted its benchmark Fed Funds rate for the tenth consecutive time, taking it to a 2007 high of between 5% and 5.25%.
Powell hinted at the time that the Fed would remain 'data dependent', at least in part, when assessing its next move in June, but cautioned that inflation remains too far above the Fed's 2% target to warrant an easing in rates or financial conditions.
Since then, inflation data has continued to slow, falling below the 5% mark for the first time in two years, but housing and retail sales figures suggest consumption remains strong heading into the summer months, while the Atlanta Fed's GDPNow forecasting tool indicates the economy is growing an at impressive 2.9% clip.
The CME Group's FedWatch, meanwhile, is pricing in a 22.4% chance of a 25 basis point increase in the Fed Funds rate next month in Washington, down from around 40% prior to Powell's remarks.
