The weakness in the commercial property sector that arose from the coronavirus pandemic and subsequent hikes in interest rates may last years, Federal Reserve chair Jerome Powell has warned.
“It is a risk that has been with us and will be with us for some time, probably for years,” Powell said. “And banks need to be honestly assessing what their risk is. They need to be assured that they have the capital and liquidity and the systems in place to manage this risk.”
Speaking before the US Senate Banking Committee, Powell said he would not be sending any signals to the timing of future rates movements, but did state it was unlikely for the next Fed move to be a hike in interest rates.
Markets currently predict that the Fed will begin cutting interest rates in September, before making a second cut at its December meeting.
However, North Dakota Republican Kevin Cramer argued to Powell that it would be a “bad perception” for interest rates to shift before the November election in the US.
Powell replied back that there were two types of risks for policy currently: Cutting too soon or cutting too late. This left him reluctant to commit to a September cut, instead stating the Fed would make calls “meeting by meeting”.
“More good data would strengthen our confidence that inflation is moving sustainably toward two percent,” the Fed chair said.
Progress is being made though. Powell added that recent labour market data has sent “a pretty clear signal that labour market conditions have cooled considerably”.
The S&P 500 rose to a record high throughout Powell’s testimony, jumping 0.2 per cent throughout the hour he spoke.
Powell will testify before Congress again on Wednesday at the House Financial Services Committee, in anticipation of key US inflation data due out later this week.