WASHINGTON—Federal Reserve Chairman Jerome Powell reaffirmed the central bank’s commitment to maintaining easy-money policies until the economy has recovered further from the effects of the coronavirus pandemic.
“The economy is a long way from our employment and inflation goals,” Mr. Powell said in testimony to the Senate Banking Committee, a statement he has repeated in recent weeks.
The Fed will therefore continue to support the economy with near-zero interest rates and large-scale asset purchases until “substantial further progress has been made,” a standard that Mr. Powell said “is likely to take some time” to achieve.
Mr. Powell delivered the Fed’s semiannual monetary-policy report to members of the committee Tuesday and is set to do the same Wednesday at a hearing of the House Financial Services Committee.
The hearings come as steady progress on vaccinations and multiple rounds of fiscal stimulus have brightened the economic outlook, the Fed chief noted. His remarks suggested, however, that improvement won’t prod the Fed to tighten monetary policy anytime soon.
“I think Powell was trying to make a very clear case that the Fed is committed to achieving a complete recovery,” said Michelle Meyer, head of U.S. economics at Bank of America. “While the news has been positive on that front when you look at the drop in virus cases and you look at some of the recent economic data, the Fed is certainly not ready to pivot on its policy stance.”
Daily coronavirus cases have fallen from their early January peak, and recent economic data including retail sales, industrial production, hiring and service-sector activity have indicated economic growth picked up in the new year after slowing in late 2020.
Consumer confidence in the U.S. rose in February for the second consecutive month as Americans grew more upbeat about current business and labor market conditions, the Conference Board reported Tuesday. Still, nearly a year after the crisis erupted in the U.S., the nation has about 10 million fewer payroll jobs than in February 2020.
Inflation also remains below the Fed’s 2% goal, a long-running worry among policy makers.
Rising U.S. Treasury yields in recent weeks suggest some market participants may have the opposite concern: that prices could start to rise faster than the Fed expects.
Mr. Powell said Tuesday that inflation could be somewhat volatile over the next year and might rise due to a potential burst of spending as the economy strengthens. But that, he said, would be a “good problem to have” in a world where economic and demographic forces have been pulling inflation down for a quarter of a century.
He said he wouldn’t expect inflation to reach “troubling levels,” and wouldn’t expect any increase in inflation to be large or persistent.
“Inflation dynamics do change over time but they don’t change on a dime, and so we don’t really see how a burst of fiscal support or spending that doesn’t last for many years would actually change those inflation dynamics,” he said.
Mr. Powell painted a brighter picture of the economy Tuesday than the last time he appeared before lawmakers on Dec. 1. Covid-19 cases and deaths at the time were surging, parts of the country were tightening restrictions on activities and public vaccination campaigns hadn’t yet begun, prompting Mr. Powell to warn at the time that the outlook for the economy was “extraordinarily uncertain.”
“Once we get this pandemic under control, you know, we could be getting through this much more quickly than we had feared, and that would be terrific,” Mr. Powell said Tuesday. “But it’s not done yet. The job is not done.”
Mr. Powell said it will take more than lower unemployment to convince Fed officials that the labor market has recovered. The jobless rate was at 6.3% in January, down from a recent high of nearly 15% in April. Before the pandemic, the rate had fallen to a half-century low of 3.5%.
Mr. Powell said the Fed monitors several measures of the labor market’s health, including the percentage of the population that is employed. That share was 57.5% in January, down from 61% before the pandemic.
“When we say maximum employment, we don’t just mean the unemployment rate,” he said. “We mean the employment rate.”
The virtual appearances come as lawmakers are negotiating President Biden’s proposed $1.9 trillion coronavirus relief package, which prompted questions to Mr. Powell about his assessment.
The Fed chairman credited past rounds of fiscal assistance for helping to fuel a recovery that has been faster than many economists expected. But he declined to comment on Mr. Biden’s proposal or even say whether he thought more fiscal aid was needed.
Sen. John Kennedy (R., La.) asked Mr. Powell whether he would be “cool with” Congress not passing Mr. Biden’s stimulus package.
“I think by being either cool or uncool, I would have to be expressing an opinion,” Mr. Powell said. “As I’ve said, it’s not appropriate for the Fed to be playing a role in these fiscal discussions.”
While he reiterated his view that reducing the federal budget deficit would be necessary at some point in the future, he added that achieving a full economic recovery should be the higher priority right now.
With overnight interest rates near zero, the Fed has limited room to cut them further to provide more stimulus. Officials have often noted that Fed tools such as low rates and bond-buying are poorly suited to provide targeted relief to the parts of the workforce and economy hardest hit by the pandemic. These include women and minorities, low-wage workers and hard-hit sectors including tourism, hospitality and leisure.
Mr. Powell also faced a number of questions related to financial stability, in particular about the risks that very low interest rates could fuel asset bubbles and cause inflation to take off.
A quarterly financial-stability review by Fed staff economists in January characterized the “vulnerabilities of the U.S. financial system as notable,” with asset valuations seen as elevated, particularly in corporate bonds, according to minutes of the Fed’s policy meeting last month. That reflected more concern than expressed in the staff’s previous assessment, in November, which characterized asset valuations as moderate.
Mr. Powell played down such risks at a press conference after that meeting, saying that the Fed’s main priority should be to address the economic distress caused by the pandemic. “I would say that financial stability vulnerabilities overall are moderate,” he said then.
The Fed’s semiannual report delivered Tuesday said that business leverage “now stands near historical highs” and that insolvency risks at small and midsize firms remain considerable.
Noting that asset bubbles triggered recessions in 2001 and 2007-09, Sen. Pat Toomey (R., Pa.), the top Republican on the panel, asked Mr. Powell if he sees a link between elevated asset prices and the Fed’s easy-money policies.
“There’s certainly a link,” Mr. Powell said. “I would say, though, that if you look at what markets are looking at, it’s a reopening economy with vaccination, it’s fiscal stimulus, it’s highly accommodative monetary policy, it’s savings accumulated on people’s balance sheets, it’s expectations of much higher corporate profits…. So there are many factors that are contributing.”
Write to Paul Kiernan at paul.kiernan@wsj.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
The Link LonkFebruary 24, 2021 at 03:07AM
https://www.wsj.com/articles/jerome-powell-sees-easy-money-policies-staying-in-place-11614092400
Jerome Powell Sees Easy-Money Policies Staying in Place - The Wall Street Journal
https://news.google.com/search?q=easy&hl=en-US&gl=US&ceid=US:en
No comments:
Post a Comment