Powell stated that the Federal Reserve is conducting a five-year review of its monetary policy framework in response to the dramatic changes in inflation and interest rate prospects since 2020, with the new framework expected to be announced in late summer or early autumn. U.S. stocks showed mixed results, and Bitcoin climbed back above $103,000.
Federal Reserve Chairman Jerome Powell delivered a speech in Washington last night (15th), stating that the Fed is launching a five-year review of its monetary policy framework.
This move is mainly in response to the significant changes in the global economic environment, especially inflation and interest rate prospects, since the last policy framework was implemented in 2020. Powell emphasized that this review aims to make the policy framework more responsive to current economic realities, with the new framework expected to be announced in August or September this year. However, he did not comment on the short-term economic outlook and interest rate path.
Reflection on Fed's policies under economic transformation
Powell emphasized the urgency and necessity of this review, clearly stating:
Since 2020, the economic environment has undergone significant changes, and our review will reflect assessments of these changes.
Powell specifically mentioned that since 2020, inflation-adjusted real interest rates have risen. He analyzed that higher real interest rates may 'reflect that future inflation fluctuations could be more severe than during the financial crisis of the 2010s.'
Real Interest refers to the nominal interest rate minus the rate of inflation, while the nominal interest rate is the reward rate that lenders receive for lending money. It includes coupon rates of corporate bonds and other bonds.
This shift, along with the possibility that the world may be entering a period of more frequent and prolonged supply-side shocks, undoubtedly poses a serious challenge to global economies and the policy-making of central banks. This review by the Fed can be seen as an effort to better equip itself to tackle these potential economic upheavals.
Federal Reserve Governor Michael Barr stated on the same day that the U.S. economy is fundamentally solid, and inflation is moving towards the 2% target; however, supply chain disruptions caused by trade policies may hinder growth and elevate inflation.
U.S. stock market trends are divergent
Powell stated that following the announcement of plans to adjust the monetary policy framework, U.S. stocks had mixed results on the 15th. The S&P 500 index rose 0.4%, marking four consecutive days of gains and returning to the price level before the trade war initiated by Trump in March of this year; however, the tech-heavy NASDAQ and Philadelphia Semiconductor Index closed lower, with AMD down 2.3%, NVIDIA down 0.4%, and TSMC ADR down 0.3%.
The Dow Jones Industrial Average rose 271.69 points, or 0.65%, to close at 42,322.75 points.
The S&P 500 index gained 24.35 points, or 0.41%, closing at 5,916.93 points.
The NASDAQ index fell 34.49 points, or 0.18%, closing at 19,112.32 points.
The Philadelphia Semiconductor Index dropped 28.28 points, or 0.57%, closing at 4,932.45 points.
Bitcoin climbed back above $103,000
In the cryptocurrency market, Bitcoin (BTC) dipped to $101,500 yesterday but began to rebound in the past 12 hours, currently reported at $103,720.
