JACKSON HOLE, Wyo.–The Federal Reserve is likely to begin withdrawing some of its easy-money policies before the end of the year, but any rate hikes remain off in the distance, according to Fed Chairman Jerome Powell.
Speaking virtually to the Fed’s annual Jackson Hole symposium, Powell said the U.S. economy has now arrived at a point where it doesn’t need as much support from the central bank.
As a result, the Fed is likely to begin reducing the amount of bonds it purchases each month before the end of the year, provided the economic recovery continues. The so-called “tapering” could begin as soon as the Fed's Sept. 21-22 meeting, according to analysts. The Fed has been buying $120 billion in bonds every month since the onset of the pandemic to minimize any economic dip.
For many Fed watchers, including credit unions, the “tapering” decision has been closely watched, as it should mean an increase in rates. But that’s not necessarily the case, said Powell.
"The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test," Powell said in prepared remarks to the event.
Powell noted that while inflation is already at the Fed's 2% target rate, "we have much ground to cover to reach maximum employment," which is the -piece of the central bank's dual mandate and necessary before rate hikes happen.
Concern Over Inflation
With consumers seeing higher prices on many items, inflation has been getting significant attention, and Powell devoted extra time in his remarks to explaining why he continues to believe the current inflation rise is transitory and will drop eventually to the target level.
While many have called on the Fed to act, Powell emphasized the importance of the central bank not making an "ill-timed policy move" in response to economic conditions he described as temporary.
"Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful," he said. "We know that extended periods of unemployment can mean lasting harm to workers and to the productive capacity of the economy."
‘Near-Term’ Risk
Powell said the Delta variant of COVID "presents a near-term risk" to getting back to full employment, but he also believes "the prospects are good for continued progress toward maximum employment."
"Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary," the Fed chairman said..
As a result, the Fed is likely to begin reducing the amount of bonds it purchases each month before the end of the year, provided the economic recovery continues. The so-called “tapering” could begin as soon as the Fed's Sept. 21-22 meeting, according to analysts. The Fed has been buying $120 billion in bonds every month since the onset of the pandemic to minimize any economic dip.
For many Fed watchers, including credit unions, the “tapering” decision has been closely watched, as it should mean an increase in rates. But that’s not necessarily the case, said Powell.
"The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test," Powell said in prepared remarks to the event.
Powell noted that while inflation is already at the Fed's 2% target rate, "we have much ground to cover to reach maximum employment," which is the -piece of the central bank's dual mandate and necessary before rate hikes happen.
Concern Over Inflation
With consumers seeing higher prices on many items, inflation has been getting significant attention, and Powell devoted extra time in his remarks to explaining why he continues to believe the current inflation rise is transitory and will drop eventually to the target level.
While many have called on the Fed to act, Powell emphasized the importance of the central bank not making an "ill-timed policy move" in response to economic conditions he described as temporary.
"Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful," he said. "We know that extended periods of unemployment can mean lasting harm to workers and to the productive capacity of the economy."
‘Near-Term’ Risk
Powell said the Delta variant of COVID "presents a near-term risk" to getting back to full employment, but he also believes "the prospects are good for continued progress toward maximum employment."
"Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to prove temporary," the Fed chairman said..
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