Stocks Rise After Powell Says US Will Likely Remain In 'Era Of Very Low Interest Rates'

The SPDR S&P 500 ETF Trust SPY traded higher by 0.2% on Tuesday as Federal Reserve chair Jerome Powell testified in front of the Senate Banking Committee as part of his confirmation process for a second term as Fed Chair.

Inflation & Interest Rates: In his testimony, Powell said a normalized supply chain should help ease inflationary pressures in 2022, but the Fed is prepared to take aggressive measures to curb inflation if necessary.

"If we see inflation persisting at high levels longer than expected, then we will…if we have to raise interest rates more over time, we will. We will use our tools to get inflation back," Powell said.

"We know that high inflation exacts a toll particularly for those less able to meet the higher costs of essentials like food, housing, transportation."

Related Link: US Adds Just 199,000 Jobs In December, Unemployment Rate Falls To 3.9%

Powell said elevated inflation is a sign the U.S. economy "no longer needs or wants" highly accommodative monetary policies. He noted that the Fed shifts its priorities from maximizing employment to price stability depending on which mandate is further from the Fed's goals, and right now the priority is keeping inflation in check.

However, Powell said he believes the era of low interest rates is here to stay: “We have been and probably remain in an era of very low interest rates."

Asset Sales: The minutes from the FOMC's latest meeting in December spooked investors last week when they included discussions of potentially reducing the Fed's balance sheet via asset sales at some point in the near future. Powell also provided a bit of clarity about the Fed's plan for 2022.

“We’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year,” Powell said Tuesday. “At some point, perhaps later this year, we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy.”

Benzinga's Take: Tapering of asset purchases, multiple interest rate hikes and potential asset sales would be a lot for the market to digest in a single year. However, the positive trading action on Tuesday suggests investors seem most concerned about the long-term trajectory of interest rates, which Powell seems to think will remain relatively low.