Powell calls it "considerable" Progress on inflation, but calls for more positive data

He also indicated that regulators are close to reaching an agreement on the Basel III criteria.

9 ()

US Federal Reserve Chairman Jerome Powell told the Senate Banking Committee on Tuesday that the Fed has made “considerable progress” in bringing inflation back to the 2% target, but that “more positive data” will be needed to bolster its confidence before lowering interest rates.

“We had seven months of good inflation data at the end of last year, then we had a quarter, actually a month or so, where inflation was up, and now we’ve had one really good inflation reading and another fairly good one. We just need to get more of these in order to build confidence,” he said.

According to Powell’s opening remarks, May data on the personal consumption expenditures (PCE) price index, the Fed’s preferred statistic for monitoring inflation, have been encouraging, showing “modest” progress that adds to the “considerable” progress already recorded.

As he has done on previous occasions, Powell has insisted that lowering rates too soon could jeopardize inflation control and that doing so too late could weigh “unduly” on GDP and employment.

Powell also said that economic activity has slowed but is still growing at a “solid pace,” while, although unemployment is growing, the labor market “remains strong” and unemployment is “low” in historical comparison. He added that the U.S. economy is showing a strength that other advanced countries with independent central banks do not have.

Powell has referred to the productivity differential between the US and Europe over the past 40 years, with an annual improvement of 1% in the Old Continent and 2% on the other side of the Atlantic. He has attributed this phenomenon to the “flexibility” of the US labour market and a financial sector made up not only of banks, but also of other types of sources of financing focused on innovative projects.

BASEL III

The Fed chairman was also questioned about the Basel III criteria for banking, and he said that sufficient progress had been made in setting them up to be “very close” to reaching an agreement among the relevant actors on the content of the changes.

However, he refused to give details as “nothing is agreed until everything is agreed” and a final decision has not yet been taken. “In my opinion, as well as that of the members of the Committee, [Federal de Mercado Abierto]”We need to submit a revised proposal for comment over some time,” he said.

The rules of Basel III, an international agreement that emerged in the wake of the 2008 financial crisis to prevent future bank failures, would raise the capital requirements that financial institutions should allocate to anti-crisis “buffers.” Critics of the initiative point out that this will reduce credit in circulation and negatively affect growth.