The Federal Reserve remains a key variable for the market.

At midnight on December 5, Beijing time, Federal Reserve Chairman Powell stated during a public interview that the strength of the U.S. economy means that the Federal Reserve can show some restraint in terms of interest rate cuts. This is his last public speech before the silent period of the December Federal Reserve meeting, attracting significant market attention.

In response to concerns about policy independence, Powell emphasized that the Federal Reserve's independence as a central bank is supported by Congress. The tariff ideas of the incoming President Trump have not yet materialized, and the Federal Reserve cannot formulate corresponding policies. The Federal Reserve will model, assess, and observe tariff issues, but monetary policy is about what is happening right now.

Analysts believe that Powell's remarks are slightly leaning towards 'hawkish', but have stopped at a suitable position that will not challenge the market's confidence in a rate cut in December. According to CME's 'FedWatch', the probability that the Federal Reserve will keep the current interest rate unchanged until December is 22.5%, and the probability of a cumulative cut of 25 basis points is 77.5%.

At the market level, as of the close of the U.S. stock market, the three major indices collectively reached historic highs, with the S&P 500 up 0.61%, the Nasdaq soaring 1.3%, and the Dow up 0.69%, closing at 45014.04 points, marking the first time it closed above 45000 points; the tech 'Big Seven' in the U.S. stock market all rose.

Powell's latest comments

At midnight on December 5, Beijing time, Federal Reserve Chairman Powell stated during a public interview that the strength of the U.S. economy means that the Federal Reserve can show some restraint in terms of interest rate cuts.

He said at the DealBook/Summit conference hosted by The New York Times: 'The state of the U.S. economy is very good, and there is no reason not to continue this momentum. The good news is that we can be a bit more cautious (in terms of interest rate cuts).'

This is Powell's last public speech before the silent period of the December Federal Reserve meeting. Investors are trying to find clues about an interest rate cut from this speech.

However, Powell did not directly comment on whether the Federal Reserve has decided to continue cutting interest rates in December during the interview.

Powell believes that the risk of a downturn in the labor market has decreased. With strong economic growth and a slight stickiness in rising prices, the Federal Reserve may be more cautious. Over time, the Federal Reserve's policy interest rate will become more neutral. The Federal Reserve can remain patient and cautiously move toward a neutral rate.

Powell pointed out that the Federal Reserve has not yet achieved its goal of reducing inflation but is still making progress in lowering inflation. From the employment data, the employment situation in the U.S. is good, but the low-income class is under pressure. Powell believes that the current economic situation is better than when the Federal Reserve began cutting interest rates in September. This situation implies that the Federal Reserve can cut interest rates more slowly.

In the interview, Powell reiterated that the Federal Reserve's independence as a central bank is supported by Congress.

When the meeting host asked about the idea of a 'shadow Federal Reserve Chair' under the Trump administration, Powell directly denied it, stating that the new administration would not seek to achieve such a concept, 'I think it is simply not possible.'

Powell also explained why the 'Trump tariffs' cannot be included in policy considerations at this time, stating that the Federal Reserve currently faces too many unknowns to seriously consider any consequences that high tariffs may bring, such as which specific goods will be subject to tariffs and the duration of any new trade policies. It is unclear how large the Trump tariffs will be, when they will be implemented, and how long they will last.

Powell said that Trump's tariff ideas have not yet materialized, and the Federal Reserve cannot formulate corresponding policies.

Powell stated that the Federal Reserve will model, assess, and observe tariff issues, but monetary policy is about what is happening right now.

Powell reiterated that the U.S. debt situation is unsustainable. However, he pointed out that the Federal Reserve has never discussed the federal government's debt level when formulating monetary policy, and the Fed's and Treasury's fiscal functions are clearly separated.

The Federal Reserve Beige Book has been released.

On December 4 local time, the Federal Reserve stated in its latest (Beige Book) report that after experiencing almost no changes in the previous months, U.S. economic activity saw slight growth in November. Although the overall growth in economic activity is small, growth expectations in most regions and sectors have moderately increased. Businesses are showing greater optimism about future demand, while consumer spending remains generally stable. Employment levels are flat or only slightly increasing.

The most recent Beige Book report paints a more gloomy picture of the U.S. economy than official statistics, showing stagnant economic growth, declining hiring rates, and slight price increases. In many cases, this contradicts economic data, which shows that U.S. economic activity remains strong, consumer spending is robust, and unemployment rates are relatively low.

The Federal Reserve's regional reports indicate that inflation has only slightly increased, as consumers become increasingly sensitive to prices, limiting businesses' ability to pass rising costs onto consumers.

The Beige Book indicated that inflation is generally moderate, but several regional contacts mentioned that due to the expectation of new tariffs from the incoming Trump administration, there is a risk of price increases in the future.

The Beige Book shows that the Philadelphia Fed reports: 'Many businesses express concern that tariffs will lead to price increases. In the fourth quarter of 2024, the trimmed mean of inflation expectations for all businesses is 3.3%, higher than the 3.0% in the third quarter.'

Regarding the labor market, the Beige Book noted that business people expect employment to grow steadily or slightly. Surveys show that wage growth in most regions has slowed to moderate levels, and wage growth is expected to remain the same in the coming months.

The Beige Book report includes anecdotes and comments on the economic conditions from businesses and other contacts in the 12 Federal Reserve districts. The Beige Book and a series of U.S. economic data will help influence the debates of Federal Reserve policymakers at their meeting on December 17-18, when they will decide whether to cut interest rates for the third time.

This Beige Book was compiled by the Kansas City Fed, based on information collected up to November 22, when the U.S. presidential election had concluded. Overall, the report reflects cautious optimism in U.S. economic activity. Although economic growth is moderate and inflation is controlled, price sensitivity, employment challenges, and regional issues remain ongoing concerns.

The latest survey results may influence Federal Reserve policymakers' thoughts on how quickly they may need to further cut interest rates and how much more they need to cut.

According to CME's 'FedWatch': The probability that the Federal Reserve will keep the current interest rate unchanged until December is 22.5%, the probability of a cumulative cut of 25 basis points is 77.5%. The probability of maintaining the current interest rate unchanged until January next year is 17.2%, the probability of a cumulative cut of 25 basis points is 64.5%, and the probability of a cumulative cut of 50 basis points is 18.2%.