The most important voice before the Fed's decision in March! What will Powell talk about in his appearance?

　　Starting on Tuesday, Federal Reserve Chairman Powell will attend hearings of the Senate Banking Committee and the House Financial Services Committee successively, and will be questioned by lawmakers on the semi-annual monetary policy report.

　　After a series of strong inflation, employment and other economic data were released, Powell's statement in the question-and-answer session will become the key information for the outside world to evaluate the future path of monetary policy.

Compared with January, the market’s pricing of monetary policy is now ahead of the Federal Reserve. How to find a path to achieve the two responsibilities while easing the impact of interest rates on the economy will become an important point of view.

Reaffirms determination to target inflation

High commodity prices are currently the biggest challenge facing the Fed, and may become the first problem Powell will meet.

　　In its semi-annual monetary policy report to Congress, the Federal Reserve stated that it is fully aware of the challenges brought by high inflation to the economy and is firmly committed to the 2% price increase target.

The report noted that the Fed understands the enormous challenges posed by high inflation, especially for groups that cannot afford higher-priced necessities.

　　Powell said at a press conference after the January interest rate meeting that the U.S. economy is still in the "early stages" of easing inflation.

Commodity prices have continued to fall, and inflation in the housing services sector is expected to continue to rise before falling, but the core services sector has yet to see signs of retreating.

　　However, recent data suggest that disinflation trends are running into resistance.

As the Fed's most concerned inflation indicator, the U.S. core personal consumption expenditures price index (PCE) rose by 4.7% year-on-year in January, the first time in nearly seven months that it stopped falling and rebounded.

The upward trend of service inflation does not seem to have a clear inflection point, the labor market continues to be hot, and the number of initial jobless claims has remained below 200,000 for seven consecutive weeks.

　　Boris Schlossberg, macro strategist at BK Asset Management, an asset management agency, said in an interview with a reporter from China Business News that the new crown epidemic has largely changed the structure of the US labor market, including population aging, early retirement and immigration. Factors such as weakness have dragged down labor supply, making it difficult for the employment participation rate to return to pre-epidemic levels.

He believes that these changes may signal that the labor market is slow to respond to the Fed's restrictive policies, thereby increasing uncertainty.

　　Schlossberg told China Business News that high inflation is not expected to disappear anytime soon.

The Fed needs to see signs of a steady decline in prices, and the reality is that the FOMC is likely to raise rates even higher and for a longer period of time.

The potential risk is that with the release of policy effects, the pressure of recession will continue to accumulate.

　　Craig Erlam, a senior market analyst at Oanda, told CBN reporters that U.S. inflation has recently reflected sticky characteristics, and Powell may reiterate his stance and send a stronger signal.

"The inflation path in the post-epidemic period has entered a second stage, which makes policy management more difficult. As a result, the market has re-priced the Fed funds forecast. What is the level of interest rates that is sufficient to remove inflationary pressures while stabilizing the economy? The Fed There may not be much room for answers," he said.

　　UBS analyst Giovanni Staunovo (Giovanni Staunovo) believes that Powell is unlikely to change his tone. He is expected to reiterate the need to raise interest rates further to control inflation, and the road will be long and bumpy.

Economic resilience and the outlook for interest rates

　　Although the Fed's interest rate hikes have put pressure on the US economy, Powell has been optimistic about the prospect of a soft landing from beginning to end.

He sees the Fed avoiding a really deep recession and a significant rise in unemployment while achieving its medium-term inflation target.

Powell is also expected to face comments from lawmakers about the impact of rate hikes on the economic outlook.

　　Recent data suggest that the U.S. economy is far from recession.

In January, 517,000 new non-agricultural jobs were created across the United States, and the unemployment rate fell to a new low since the 1950s.

The service industry, which accounts for more than two-thirds of the U.S. economy, is getting back on track. The ISM non-manufacturing index and the S&P global services PMI are firmly in the expansion range.

Income gains were underpinned by the labor market, with consumer spending rising 1.8 percent in January, the biggest gain in nearly two years.

　　The Atlanta Fed’s GDPNow tool shows that the annualized growth rate in the first quarter of this year was set at 2.3%, returning above the long-term growth trend line.

Although the recession warning signal-the inversion of the 2/10-year U.S. bond yield curve continues to widen, supporters of the no-landing (no landing) scenario for the economy to avoid recession are growing.

　　The semi-annual policy report mentioned that the labor market remains in short supply and economic growth may need to slow further to keep prices from rising.

"In response, the FOMC continued to rapidly raise interest rates and reduce the size of its balance sheet."

　　The first financial reporter noticed that

Richmond Fed President Thomas Barkin said rates could rise to a range of 5.50% to 5.75% if inflation is more persistent than expected, and Minneapolis Fed President Neel Kashikari hinted that his own May raise the original 5.4% terminal interest rate expectations.

The majority of centrist members believe that in order to ensure that inflation continues to fall, the Fed needs to raise interest rates to a higher level than previously expected and for a longer period of time, avoiding the risk of ending tightening prematurely.

Atlanta Fed President Raphael Bostic, one of the few dovish members, signaled consideration of ending the rate hike cycle by the summer.

　　After the market digested the latest official speeches and economic data, compared with the end of the January meeting, the federal funds rate futures showed that the terminal interest rate pricing of this round of interest rate hike cycle has risen from around 4.90% at that time to 5.43%, which is equivalent to an increase There was room for two hikes.

　　There are quite a few radical voices on Wall Street these days.

Bank of America Global believes that the Federal Reserve may raise interest rates to nearly 6% because strong U.S. consumer demand and a tight labor market will force the central bank to deal with inflation for a longer period of time.

"Aggregate demand needs to weaken significantly for inflation to return to the Fed's target. Further normalization of supply chains and a slowdown in the labor market will help, but only to an extent," the report said.

　　Erlam told the first financial reporter that although the current economic situation is worthy of recognition, he tends to think that Powell will not give more clear information on the policy path in March and beyond.

"Similar to January, specific decisions may not be finalized until the eve of the meeting. As the Fed has mentioned in its resolution statement in recent months, the cumulative effect of monetary policy will be considered when determining future target interest rates, and The lagged impact on economic activity and inflation," he said.