US Federal Reserve Chairman Jerome Powell had a ready answer to counter criticism that the US central bank is running risks with inflation, as he signaled it would maintain aggressive support as the nation’s recovery gathers speed.
“The economy is beginning to move ahead with real momentum,” Powell told reporters on Wednesday after the Fed held interest rates near zero and kept bond purchases at US$120 billion a month.
That is likely to push up prices amid surging demand, but “an episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation,” he said.
Photo: AFP
Powell was dismissive of anecdotes of labor shortages, saying it is mostly as an allocation problem, adding that millions of workers thrown out of employment amid the COVID-19 pandemic are still on the sidelines.
Employers do not seem to be bidding up wages yet, despite the claims of scarcity in some sectors, he said.
He also played down the rise of goods prices as a matter of supply catching up with demand as a recovery takes hold.
During one detailed answer on inflation he appeared to be reading from notes — reinforcing the impression that he had expected to be confronted about price pressures amid ultra-easy Fed policy — and was not going to back down.
“I took away that not even any preliminary discussion of a change in policy is imminent,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago. “He gave a spirited defense of the Fed’s view on inflation and employment. They are very happy with the course they are on and not likely to change it soon.”
Powell and his colleagues met amid growing optimism for the US recovery, helped by widening vaccinations, and aggressive monetary and fiscal support.
US President Joe Biden on Wednesday unveiled a US$1.8 trillion plan to expand educational opportunities and childcare when he addressed a joint session of the US Congress, while highlighting his US$2.25 trillion infrastructure proposal and the US$1.9 trillion COVID-19 pandemic relief package he signed into law last month.
At the same time, a rise in COVID-19 cases in some regions around the world casts a shadow over global growth prospects, giving policymakers reason to remain patient on withdrawing support.
Marking a clear improvement since COVID-19 took hold more than a year ago, the Fed said in its statement that “risks to the economic outlook remain,” softening previous language that referred to the virus posing “considerable risks.”
US central bankers repeated that they would not change the pace of bond buying until “substantial further progress” is made on their employment and inflation goals.
The target range of the benchmark federal funds rate was kept at zero to 0.25 percent, where it has been since March last year.
Powell said it was not yet time to discuss scaling back asset purchases, while acknowledging a strong US employment report for last month, which saw 916,000 jobs added to nonfarm payrolls.
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