The main event of the trading week is the semi-annual statement by Fed Chair Jerome Powell. The Fed is not yet concerned by the surge in inflation and is keeping monetary conditions unchanged over the summer.
The semi-annual statement that the Fed Chair holds is one of the most important events for financial markets. It focuses on current and future monetary policy and guides market participants about what comes next from the Federal Reserve.
Yesterday’s testimony in front of the House Committee on Financial Services covered a little bit of everything. The Fed Chair talked about housing prices, digital dollar, stablecoins and tapering of the asset purchases. But the main focus was on inflation, as it has spooked financial market participants of late, surging at a much faster pace than expected.
On Housing Prices
The Fed acknowledged that housing prices are rising fast in America. The low rates helped to fuel the housing prices across the country, but the Fed is not worried at this point because the rise is not due to reckless financing. Here, the Fed Chair hinted that current conditions on the housing market are different than they were in 2008.
On Digital Currency
One of the most interesting aspects of yesterday’s statement was the Fed’s view on digital currencies. Just like the European Central Bank, which dedicates important resources to study the introduction of a digital euro, the Fed signaled that the market should expect a digital currency report in early September.
He also said that with a digital dollar, there is no need for other cryptocurrencies. Moreover, stablecoins need regulation, just like money market funds.
Powell suggested that the surge in inflation is somewhat higher than the Fed expected and that it is monitoring the situation closely. Nevertheless, the Fed is not worried and sees inflation as in line with its mandate. It suggested that inflation expectations are key to the Fed, and only a change there will trigger a change in the Fed’s policy.
Today’s testimony in front of the Senate Banking Committee will likely be similar. The US dollar traded with a weak tone during Powell’s speech yesterday, and it may do the same today.