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Powell On Market Rate Pricing As "Appropriate" And Taylor Rules


A few highlights of Fed Chair Powell's Q&A with the Senate Banking Committee:

  • Asked about whether Fed hikes will bring down gasoline and food prices: "I would not think so, no."
  • Asked what the Fed is going to do next to bring inflation down: "Financial conditions have tightened and have priced in a string of additional rate increases, and that's appropriate. The market has been reading our reaction function reasonably well...what you'll see is continued expeditious progress toward higher rates. The center of the committee wrote down that rates would be between 3% and 3.5% by the end of this year."
  • Asked about how low the Fed funds rate is vs where the Fed's own Taylor Rule estimates say it should be: Powell notes that Taylor-type rules on where rates "should" be only take into account current policy rates, but not changes in financial conditions (including now when more hikes are already priced into the curve). Says that by the end of the year, the Fed's rates will be "close to" what the Taylor rule calls for. And adds that the Fed could look at using rules in their next Framework Discussion.

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