Powell (Fed) reiterates that progress to return inflation to 2% is not assured and calls for more data

The head of the Fed advances that the draft Basel III criteria for banking entities is likely to be modified.

Powell (Fed) reiterates that progress to return inflation to 2% is not assured and calls for more data

The head of the Fed advances that the draft Basel III criteria for banking entities is likely to be modified


The president of the Federal Reserve (Fed), Jerome Powell, has stated that progress in returning inflation to the 2% target is not "guaranteed", which is why he has championed the need for more data to confirm the convergence of prices with said 2% before undertaking cuts in interest rates.

These statements, made this Wednesday in its semiannual appearance before the House of Representatives, have indicated that, given the strength of the economy and the labor market, the Fed must proceed "with caution" and with "greater confidence" that they can only provide additional data on price developments.

Powell has acknowledged, for his part, that rates are unlikely to rise again given that they are at their "peak" for the current monetary cycle. However, the president of the North American central bank has warned of the risks of cutting rates prematurely without data showing that inflation would not pick up accordingly.

"Easing monetary policy too soon or excessively could result in a reversal of progress on inflation and ultimately require even more restrictive policy to return inflation to 2%," warned Powell, who He has also pointed out that maintaining the restrictive tone for too long could weigh "unnecessarily" on economic growth and employment.

On January 31, the issuing institute chaired by Powell decided to maintain the reference rate in the target range of between 5.25% and 5.5%, the highest since January 2001.

Regarding the Basel III rules, the Fed chair has said that "broad and material changes" are likely to be made to proposals to rewrite capital requirements for banks. In fact, Republican members of Congress have called for the current draft to be scrapped.

Powell has indicated that he "has heard the concerns" of entities about the US interpretation of the rules developed by the global regulators that make up the Basel Committee on Banking Supervision, and that these will be addressed. "I expect broad and substantial changes to be made to the proposal," she said.

The Basel III criteria, if applied in their current format, would increase the level of capital that banks with at least $100 billion (€91,682 million) in assets would be required to maintain.

Reserve more capital means that banks would have fewer funds to lend and inject into the economy, but, in the event of a financial crisis, this greater cushion would facilitate the survival of the entities.

Thus, the proposal contemplates that US banks considered of global systemic importance would have to reserve, on average, 19% more capital. Banks with more than 250,000 million dollars (229,205 million euros) in assets that are not of systemic importance would see the minimum reserve increased by 10%.

Powell has maintained that he expects the economy to continue its good pace of expansion this year. In fact, the projections advanced in December by Fed officials anticipated growth of 1.4% in annualized terms.

"I can say that there is no evidence or reason to think that the United States economy is in, or has, short-term risks of falling into a recession," he assured, clarifying that the possibility always exists, but that the probabilities are not "high" at the moment.

On the other hand, Powell has described the accumulation of bank risks from loans granted to the commercial real estate sector as "manageable", although its concentration in small and intermediate-sized banks is "disproportionately high."

This sector has been affected by the consolidation of teleworking after the pandemic, which has resulted in empty office rates that could potentially jeopardize the repayment of credits contracted by office lessors in the future.