Investors Rattled by Powell’s First Comments as Fed Chair

Jerome Powell, chair of the US Federal Reserve, has spent the week setting the bar for what investors can expect to see from interest rates in the coming months.

Powell, who started his position as chair in early February, gave his first testimony to the House Financial Services Committee on Tuesday (February 27). During the session, he gave his personal opinion on the strength of the economy in coming months.

“Generally, it feels to me the next couple of years look quite strong,” Powell said. “I expect the next two years on the current path to be good years for the economy — labor markets continuing to improve, inflation moving up to 2 percent, and I would think that that should create a good environment for people … who are in the commodity business as well.”

He also went on to say that the central bank will do its best to avoid letting the economy overheat.

“Engaging 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,” Powell said.

“Despite the recent volatility, financial conditions remain accommodative … further gradual increases in the federal funds rate will best promote attainment of both of our objectives,” he added.

Powell’s optimistic statements, which allude to the possibility of either faster interest rate hikes through the year, or more hikes than the original three suggested in December, sent stocks tumbling and Treasury yields flying. Investors immediately feared the potential speed of growing interest rates through 2018.

Later in the week, Powell told the Senate Finance Committee that “there is no evidence” that the economy is currently overheating, and that the central bank hasn’t found any reason to stray away from its gradual process of interest rate increases, extinguishing some of the major investor concerns from his previous statements.

In both appearances, Powell’s statements held a strong sense of optimism for the economic future of the US. Though his original comments on Tuesday gave investors (and stocks) a very real startle, his diligent positivity through the second meeting left market watchers feeling a bit more secure, albeit cautious, of what’s to come.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.