Fed's Powell commits to full employment and stable inflation mandates
In his first remarks as the new head of the US central bank, Jerome Powell appeared to strike a balance between pointing to continuity with his predecessors and a slightly less hawkish take on then current inflationary pressures and the Federal Reserve's policy bias.
Strikingly, he also voiced his support for the use of so-called policy rules when calibrating the monetary authority's decisions.
"I want to affirm my continued support for the objectives assigned to us by the Congress -- maximum employment and price stability -- and for transparency about the Federal Reserve's policies and programs," he said in prepared remarks for his semi-annual testimony before the House Financial Services committee.
"In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis," he said, adding that inflation "has been low and stable."
Powell also indicated he expected prices to stabilise around the Fed's 2% target over the medium term, even as wages accelerated.
The new Fed chair concluded by showing his support for the use of policy rules when setting policy.
"In evaluating the stance of monetary policy, the FOMC routinely consults monetary policy rules that connect prescriptions for the policy rate with variables associated with our mandated objectives.
"Personally, I find these rule prescriptions helpful. Careful judgements are required about the measurement of the variables used, as well as about the implications of the many issues these rules do not take into account."
Commenting on Powell's remarks, Andrew Hunter at Capital Economics said: "Although he avoided dropping any heavy hints, the upbeat tone of Fed Chair Jerome Powell's first semi-annual congressional testimony today suggests that a March rate hike is, as futures markets believe, a near-certainty.
"[...] That said, we continue to expect the Fed to hike rates four times this year, rather than the three that most officials had previously pencilled in, taking it to between 2.25% and 2.50% by end-2018."
As of 1354 GMT, the yield on the benchmark 10-year bond yield was one basis point lower to 2.86% and down three basis from its intra-day high, while S&P 500 futures were pointing to a 4.0 point drop at the opening bell to 2,780.50.
For their part, according to the CME's Fed watch tool, Fed funds futures were pricing in a 68% probability that the central bank would hike overnight rates three times over the course of 2018, by 25 basis points on each occasion.