11.01.202311:33 Forex Analysis & Reviews: Powell urged politicians not to interfere with the Fed

Fed Chairman Jerome Powell asked politicians to avoid interfering with the central bank, stressing it should be free from any influence as long as it struggles with persistently high inflation.

He explained that stabilizing prices requires tough decisions that can be politically unpopular. "Price stability is the backbone of a healthy economy and, over time, brings immeasurable benefits to the population," Powell said. "But restoring it when inflation is high may require measures that are unpopular in the short term as we raise interest rates to slow the economy. The lack of direct political control over our decisions allows us to take the necessary measures without regard to short-term political factors," he added.

Markets surprisingly took these statements calmly, perhaps because they did not provide any direct indication of where the Fed's policy was heading. Nevertheless, further increases are expected this year.

Powell has recently encountered strong opposition and criticism of his actions from both parties. Most recently, Senator Elizabeth Warren of Massachusetts criticized the observed round of rate hikes, while President Joe Biden largely refrained from commenting on the Fed's actions, noting that the central bank is primarily responsible for fighting inflation.

Although Powell repeatedly stated that political factors have not influenced his actions, it is clear that the pressure on the central bank is high as more and more politicians are talking about a return to a softer approach amid the first signs of slowing inflationary pressures. He also appealed for lawmakers to use their regulatory powers to address climate change, as well as asked major banks to check their financial preparedness in case of situations, such as hurricanes and floods. "Decisions on policies that directly address climate change should be made by the elected branches of government, reflecting the will of society," he said. "But without clear legislation, it would be inappropriate for us to use our monetary policy to develop a greener economy or to achieve other goals related to climate change in the world," he added.

With regards to the forex market, EUR/USD still has a chance of updating the December highs, but for this to happen, the pair has to break above 1.0760 as only that will push the quote to 1.0790 and 1.0850. Meanwhile, a drop below 1.0720 will bring the pair to 1.0680 or to 1.0650.

In GBP/USD, buyers need to stay above 1.2140 to maintain their advantage as the rise is gradually slowing down. The breakdown of 1.2200 will spur the pair to reach 1.2260 and 1.2301, while a fall below 1.2140 will push it to 2090 and 1.2040.