US Federal Reserve Chair Jerome Powell on Thursday repeated his pledge to keep credit loose and flowing until Americans are back to work, rebutting investors who have openly doubted that he can stick to that promise once the COVID-19 pandemic passes and the economy surges on its own.
With vaccines rolling out and the government fiscal taps open “there is good reason to think we will make more progress soon” toward the Fed’s goals of maximum employment and 2 percent sustained inflation, Powell told a Wall Street Journal forum.
However, “even if that happens, it will take substantial time... We want labor markets consistent with our assessment of maximum employment. That means all of the things,” Powell said in reference to hopes for not only a low unemployment rate, but also wage and job gains that flow to minorities and others often left out of the first stages of an economic rebound.
“I want to be clear about this,” Powell said in anchoring the Fed’s promise to keep its near zero interest rates and monthly bond-buying intact.
Even if prices jump as anticipated this spring, “I expect that we will be patient,” and not change monetary policies that need to remain supportive until the economy is “very far along the road to recovery,” Powell said.
His comments, likely the last before a news conference on March 17 following the Fed’s next policy meeting, set aside concern that a recent rise in US Treasury yields might spell trouble for the Fed, as investors push up borrowing costs that the central bank wants to keep low for firms and families looking to finance major purchases and investments.
While Powell said that the increase was “notable and caught my attention,” he did not consider it a “disorderly” move, or one that pushed long-term rates so high that the Fed might need to intervene in markets more forcefully to bring them down, such as by increasing its US$120 billion in monthly bond purchases.
“Our current policy stance is appropriate,” he said.
The yield on the 10-year Treasury note rose another 5 basis points as Powell was speaking and signaled no immediate move was imminent from the Fed to cap the increase. Stocks fell.
Some analysts thought that Powell in his remarks might nod to the Fed’s ability to more aggressively intervene and increase its bond-buying scheme if long-term yields keep rising.
However, Powell and other Fed policymakers have made it clear that rather than viewing the run-up in bond yields — which has taken the benchmark 10-year Treasury yield to levels not seen since before the pandemic — as a sign of potentially damaging inflation expectations, they see it pointing to confidence in a recovery that has not had much effect on the broader financial conditions that the Fed is monitoring.
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