Federal Reserve Chairman Jerome Powell hinted that the central bank is moving in the direction of reducing its bond purchase program, and has achieved a middle ground between inflation hawks and doves. However, Powell did not promise any specific date when it will start.
Powell delivered a highly anticipated speech at the opening of the Federal Reserve Global Central Bank Governors’ Annual Symposium in Jackson Hole, Wyoming. He warned that these labor shortages and the “near-term risks” of COVID-19 Delta variants need to be developed. Prior to continuing to monitor any major policy changes. He warned that history is full of examples of how “out-of-time” policy decisions can damage the recovery.
Powell said: “Today, there is still a lot of idle labor in the labor market, and the pandemic continues. Such mistakes can be particularly harmful.” “We know that long-term unemployment can mean lasting damage to workers and economic productivity.”
While continuing to maintain a prudent pace for further reforms, Powell responded to his regional Fed counterparts while suggesting that the bank’s $120 billion monthly bond purchases may soon gradually decrease. Federal Reserve Chairman Kansas City Fed President Esther George introduced Powell before his speech. He commented that it is correct to cut asset purchases before they begin to do more harm than good.
Even if the Fed starts to reduce purchases, Powell pointed out that this will not herald any change in long-term interest rates close to zero.
Powell explained: “The imminent reduction in the timing and speed of asset purchases will not send a direct signal to the timing of interest rate increases. For this reason, we have clarified a different and substantially more stringent test.”
Powell also took the time to understand the gains and challenges that the US economy has experienced as it recovers from the COVID-19 pandemic.
Powell emphasized that when COVID-19 shut down most of the country, the unemployment rate dropped sharply from a peak of 14% to a more manageable 5.4%. While acknowledging the danger of the Delta variable, the Fed chairman said, “The prospects for continued progress in maximizing employment are good.”
On the same day Powell gave a speech in Jackson Hole, U.S. Department of Commerce According to new data released, the personal consumption expenditure price index, the Fed’s preferred inflation indicator, rose 0.4%. In line with expectations.
Last month’s Consumer Price Index (CPI) data also showed a drop from 0.9% in June to 0.5% in July, indicating that emerging demand accompanying the reopening may be slowing.
Powell reiterated that the Fed will stick to the policy recently adopted since July that it would be comfortable to allow inflation to be higher than its 2% average benchmark target for a period of time.
Respond to critic Powell believes that the central bank is pushing inflation in a worrying direction, but Powell still believes that an appropriate balance is being achieved and that the Fed is ready to adjust policy as needed.
