Powell Re-Nomination / Fed Digital Currency Report

Yesterday Fed Chair Jerome Powell was in front of the Senate for his re-nomination hearing, where he said that the US labour market is recovering ‘incredibly rapidly’, along with the strength of the recovery, believing it was time to shift course away from the pandemic support settings. In general, there was not much in the way of new information from Powell at this nomination hearing that wasn’t already discussed at length in the December FOMC minutes and subsequent press conference.

However, one exchange during the hearing did catch the eye. It was a hypothetical question from Senator Mike Crapo. He asked where things might be on the policy front in terms of tools the Fed could use if in three to four months the unemployment rate was still below 4% and inflation was still in the 5% to 7% range.

Powell responded: ‘So I think, to your point, we're at a place where unemployment is now very low, historically low, and inflation is well above target, and the economy no longer needs these - this very highly accommodative stance of policy. And I would expect that this year, 2022, will be a year in which we take steps toward normalization. That will involve raising the federal funds rate. That will involve ending asset purchases in March, and perhaps later this year, depending on the run of things. We would also see ourselves beginning to allow the balance sheet to shrink. So that's what I think is the broad picture of what I see happening. The committee hasn't made any decisions about the timing of any of that. And it's -- I think we're going to have to be both humble and a bit nimble here’.

Powell was also asked by Crapo when the Fed’s upcoming report on digital currencies would be released. To that Powell replied: ‘The report really is ready to go and I would expect we will drop it, I hate to say it again, in the coming weeks, but it really is in a situation where it’s ready to go ... it was hard to, we didn’t get it quite to where we needed to get it but it’s effectively there now and I will tell you it’s, we’re, you know, it’s within weeks we will be publishing it. And by the way, it’s more going to be an exercise in asking questions and seeking input from the public rather than taking a lot of positions on various issues, although we do take some positions’.

Talking about digital currencies, did you know there is a Bitcoin Fear & Greed Index. I didn’t, probably because I have zero interest. However, for those who do care, its current level is 23/100, meaning extreme fear that Bitcoin (other digital currencies are available) prices will fall in the coming days/weeks.

Fixed Income Team