Powell does not see rising interest rates on the horizon as long as inflation remains low

Federal Reserve Board Chair Jerome Powell confirmed his commitment to maintaining low interest rates for the foreseeable future, despite expressing expectations for a strong economic recovery.

In a question and answer session released by Princeton University, the central bank governor said, “Whenever it’s time to raise interest rates, I’ll do so. By the way, that time is just around the corner.”

In a broader debate, Powell talked about how the Fed addressed the challenges posed by the Covid-19 pandemic and his expectations for the future.

In its latest policy statement issued in December, the Federal Open Market Committee will remain accommodative until it sees “substantial further progress” towards employment and inflation targets. Stated.

Regarding employment mandates, Powell emphasized the Fed’s new approach that the Fed will not raise inflation when unemployment falls below what was previously considered a warning sign of price pressure.

“Unless inflation and other imbalances that threaten the accomplishment of our mission begin to appear, that won’t be a reason to raise interest rates,” he said.

One such imbalance is inflation. Recently, several Fed officials have said inflation could rise faster than central banks expected, forcing some policy accommodations to be removed sooner than committee members expected. Warns that there is.

The Federal Reserve Board’s benchmark short-term borrowing rates are fixed at near zero and continue to buy at least $ 120 billion in bonds each month. Core inflation is around 1.4%, well below the Fed’s target of 2%.

“If inflation rises in an unwelcome way, we have tools for that and use them,” he said. “No one should doubt it.”

Powell said the economy faces strong challenges and there is a long way to go before the labor market recovers, but there are optimistic reasons.

“We were in a good place in February 2020, and I think we can get back there much sooner than we were afraid of,” he said.

Powell spoke on the same day that the Ministry of Labor reported the largest increase in unemployed claims since August.

The release itself came the week after the sector reported that non-farm payrolls declined in December for the first time since April amid the turmoil in the leisure and hospitality sector due to Covid-related restrictions.

Despite these challenges, Powell said the economy is facing a bright future, partly due to the lack of transmission that occurred during the 2008 financial crisis. Concerns have been expressed about the continued surge in corporate bonds and the expansion of equity market valuations. However, the Fed chair said he was not concerned about these issues.

“All economies, and certainly ours, face many long-term challenges,” he said. “But I don’t think there was a clear imbalance that threatened the expansion in progress. What this would look like if it exploded, we can’t really identify the expansion.”

Powell does not see rising interest rates on the horizon as long as inflation remains low

Source link Powell does not see rising interest rates on the horizon as long as inflation remains low

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