Powell Focuses on Economic Need at Key Moment in Markets and Politics
The US economy has recovered and the Federal Reserve is in no hurry to withdraw its support, Jerome H., chair of the central bank. Powell told lawmakers during a close hearing on Tuesday.
this is a Mr. Powell has pledged Several times in the past 11 months, but on Tuesday it came against a tense backdrop: as Democrats try to move a $ 1.9 trillion relief package through Congress, Republicans argue that it is too large and drives inflation Can give birth that will harm consumers and businesses. Markets are also beginning to crave, as investors worry that the overheating economy will prompt the Fed to pull back on efforts to spur growth.
Speaking before the Senate Banking Committee, Mr. Powell declined to lose weight Biden administration’s spending plan But the idea raised by many Republican senators emphasized that the economy was running too hot. He said the economy had been lacking about 10 million jobs since last February, inflation has been very low in recent decades, and prospects for rapid recovery are – while remaining sharp – away from reassurance.
“The economic recovery is uneven and far from complete, and the way forward is highly uncertain,” Mr. Powell said. “There is a long way to go.”
The Fed plans to keep interest rates near zero where they have been since March, while government-backed bonds continue to buy at a pace of $ 120 per month as it waits for the economy to recover . Investors have become concerned that the Fed may slow down those bond purchases such as later if inflation begins to rise.
This concern is helping to raise interest rates on long-term government debt; They reached their highest point in a year this week. Those rates are the basis for corporate lending and mortgages, and their rise has also set the stock markets on edge.
But on Tuesday, Mr Powell reiterated that the Fed plans to buy bonds until it sees “substantial forward progress” toward its dual goals of full employment and stable inflation. The US “can expect us to move cautiously and patiently, and with a lot of advance warning” when it comes to slowing that support, Mr Powell said.
Confidence seemed to help. The S&P 500 closed at a high on Tuesday, coming back from a loss of nearly 2 percent on day one and breaking a one-week streak.
Julia Coronado, founder of Macroprolisi Perspectives and a former Fed economist, said, “We are one of these market frenzy moments, with an intense focus on inflation” and “he was very quiet, very quiet.” “He kept paying attention to the labor market.”
Unemployment has decreased sharply since last year’s increase, but A. Official unemployment rate Almost double the February 2020 level. And job loss is more acute for members of minority groups and people with less education. Although spending has skyrocketed, activity in the service industry is still low.
Vaccines are feeding hopes for a stronger and more complete 2021 rebound. Compared to weak readings over the past few years, prices are expected to rise temporarily in the coming months, and potentially, as consumers spend savings on restaurant dinners and holidays during lockdown.
But Fed officials have clarified that they do not expect inflation to pick up permanently and they plan to see past temporary increases, thinking about their policies. Price is under pressure Stubbornly silentDuring the decades and instead of many advanced economies, much more.
Mr Powell said on Tuesday that long-running inflationary trends do not “change in a timely manner” and that if the prices start to rise dangerously, the Fed has the tools to fight.
“I really don’t expect that we’ll be in a situation where inflation rises to troubled levels,” Mr. Powell said. “This is not a problem for the moment, as I can understand.”
He also pushed back the idea that sending government spending out of control is leading to sending prices.
“Perhaps once there was a strong connection between the budget deficit and inflation – that hasn’t really happened recently,” Mr. Powell said. He said that while he expects inflation to rise in the coming months, there is a difference between a temporary pop in prices and a sustained rise.
Nevertheless, he quit talking about how justified the government’s support was.
“Today, I would really stay away from fiscal policy,” he said near the start of the hearing. He began to move around to answer questions about the size and various components of the minimum wage and the White House spending proposal. At one point, he was asked whether he would be “cool” with passing the spending bill.
“I think being either sober or uncle, I have to express an opinion,” Mr. Powell said.
The Fed is politically independent and away from partisan issues, but it’s done Providing advice For policymakers in Congress and Weigh on Socioeconomic disparities and financial risks are associated with climate change over the previous year. Some of that vocalism has attracted Republican attention.
Republican Senator Patrick J. of Pennsylvania. Tommy warned on Tuesday that the central bank should avoid going beyond its core duties.
“As noble as the goals may be, issues such as climate change and racial inequality are simply not within the scope of our central bank,” Mr. Tommy said.
Mr. Powell discussed how strong labor markets help marginalized people – those who are not trained or who have criminal records – to succeed. He clarified that the central bank is hoping to return to a strong labor market, such as before the epidemic.
The Fed’s bond purchases can help bolster the economy by lowering long-term interest rates and driving investors out of secured assets, much like government bonds, and into stocks and other more active use of their cash.
Mr Powell said the economy has not “truly” been built in the past three months as the Fed sees it as a precondition to slow down its purchases, as job gains have slowed. But he said there is an expectation that progress “arises in the form of an epidemic.”
When it comes to the Fed’s main interest rate, the Federal Funds Rate, which helps direct borrowing costs in the economy, Mr. Powell also gave a cautious tone. The Fed wants to get full employment, hit 2 percent on inflation, and believe the economy is on track for price gains even faster than raising that rate.
“Right now, our focus is on providing the economy with the support it needs,” Mr. Powell said at one point, summarizing his message.
Matt Phillips contributed reporting.