Insights

10 common questions about Jerome Powell and the Fed

By Paul Reid

19 February 2024

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The US economy's stability is central to global financial health, making Federal Reserve Chair Jerome Powell's announcements pivotal events for traders of all asset classes. Powell's speeches often lead to fierce speculation and debate, and here are ten popular questions being asked right now. Let’s get into it.

1. What did Jerome Powell say recently?

Jerome Powell emphasized that the ongoing battle against inflation is paramount and far from over. So the good news is that there’s no bad news… kinda. Officially, America is still solvent, although it seems that previous rate hikes did nothing to help, so it’s unclear how it’s going to get better.

2. Is the Fed raising interest rates again?

Yes, the Fed looks set to raise interest rates throughout 2024 to combat stubborn inflation. It’s not confirmed yet, but you can almost bank on it. And when rates rise, the markets rumble, but assume a rate hike will be bullish for USD.

3. How will higher interest rates affect the US economy?

Higher rates aim to cool the US economy and control inflation. Once upon a time, higher rates garnered international investors. By selling US bonds, the Fed can reduce circulations and give USD strength, but US Bonds are not the most popular asset right now. Several nations are trying to limit the amount of USD being held for trading.

4. Is the US heading for a recession?

US media have been speaking about how the US has avoided a recession. US media probably has to show a bullish outlook, but when we traders step back and look at the big picture, it’s only a question of time before the US economy reveals its true strengths or weaknesses.

5. What is the Fed doing to fight inflation?

Beyond raising interest rates and quantitative tightening, nothing. This strategy has successfully kept America above the waterline for over a year, but it’s not a fix. Right now, it looks like the Fed is trying to survive inflation, not fight it. 

6. What are the risks of raising interest rates?

Raising interest rates carries significant risks that could adversely affect the economy. Go too far and the Fed could trigger a downturn unlike anything we’ve ever seen. Higher borrowing costs resulting from increased rates can halt economic growth by flatlining business investment, potentially leading to higher unemployment, a housing crisis, and an even full-on recession.

7. What are the risks of not raising interest rates?

Failing to raise interest rates amidst soaring inflation is like steering a ship into a storm. The US economy is surviving because of artificially low borrowing costs, which can spiral into a chaotic realm of runaway inflation where the value of USD evaporates.

Also, those investors still holding US Bonds may pull out, which would fuel inflationary pressures.

8. What tools does the Fed have to control inflation?

For now, the Fed is sticking to interest rate raising and quantitative tightening, but Powell is being pressured to try new initiatives. Watch out for the Fed announcing additional measures such as fiscal policy adjustments on spending and taxation, new supply-side policies, wage and price controls, and the use of macroprudential tools. 

If those words start circulating in the media, some investors might turn bearish, assuming the Fed is losing grip on the US economy. Other investors might see new initiatives as a bullish signal.

9. What is the Federal Reserve's target inflation rate?

The Fed has a long-term target inflation rate of 2%, aiming to keep the average annual increase in prices for goods and services stable. The 2% inflation target is perhaps an unrealistic benchmark in 2024 and faces scrutiny by several economists, with some proposing its reevaluation to better reflect contemporary economic challenges.

10. How will the Fed's actions impact global markets?

It seems that the financial world is hanging on every word Powell speaks. If you expect every market to react to the Fed, you’ll be right more times than wrong. Having said that, don’t expect the usual cause-and-effect relationships. USD is not the golden ticket it once was.

Consider reviewing Powell’s most recent comments and ask yourself if his message is generally bullish or bearish for the US, then test the theory by trading USD on the Exness demo account risk-free. Learning and exploring how the US economy affects the financial ecosystem should be at the top of your to-do list in 2024.

Conclusion

Powell and the Fed are fighting to keep America afloat. The US economy is fragile, despite what the media might be suggesting. It’s election year, so expect Democratic-leaning media to keep the sunshine and rainbow stories running, but don’t be fooled by bullish rhetoric. One wrong move by Powell could send the US into a downward spiral. Factor this sentiment into your review and don’t be surprised if US data reports don’t move the markets in a usual way.

Keep your finger on the market pulse, and be ready for huge selloffs that show up when least expected, followed by miraculous and unexplainable recoveries.


This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.


Author:

Paul Reid
Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.