The SPDR S&P 500 ETF Trust SPY traded slightly higher on Thursday after Federal Reserve Chair Jerome Powell testified in front of Congress for the second straight day.
Powell told the U.S. Senate Committee on Banking, Housing and Urban Affairs that Russia's invasion of Ukraine will generate "upward pressure on inflation at least for a while." The message seemingly contradicts the Fed's recent reassurances to Americans that pricing pressures will ease in the next several months.
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“In this very sensitive time at the moment, it’s important for us to be careful in the way we conduct policy simply because things are so uncertain and we don’t want to add to that uncertainty,” Powell said.
Hindsight Is 20/20: Powell conceded the Fed should have taken a more aggressive approach to fighting inflation when it had the opportunity.
“Hindsight says we should have moved earlier… but there really is no precedent for this,” he said.
On Wednesday, Powell told Congress that he believes 0.25% interest rate hikes are appropriate for now starting this month, but he also said he is open to larger rate hikes if inflation worsens.
Powell said rising oil prices will likely continue to lead to higher gasoline prices for Americans due to Russia's central role in global oil production. WTI crude oil prices pulled back to under $110 per barrel on Thursday after hitting the highest levels since 2008. The United States Oil ETF USO is already up 37.1% year-to-date.
Investors Remain Skeptical: DataTrek Research co-founder Jessica Rabe said Wednesday that investors still don't fully trust the Fed will be able to get inflation in check without at least one 0.5% rate hike sometime this year. The bond market is currently pricing in a 34.4% chance rates will rise by at least 1.75% before the end of 2022, according to CME Group.
"Consumers haven’t yet balked at higher prices which is a positive for corporate earnings power, but the Fed will also need to strike a better balance of demand/supply without hurting the current economic expansion," Rabe said.
Benzinga's Take: Powell certainly didn't strike a confident tone on Thursday when addressing inflation, which could be particularly concerning given the role sentiment plays in driving prices higher. Oil shocks have triggered more economic recessions than any other catalysts in the past 50 years, according to DataTrek.
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