On Wednesday, Feb. 24, Fed Chairman Jerome Powell reiterated his statement from yesterday’s Senate hearing during a House Financial Services Committee hearing that “the Fed will continue to buy assets at the current pace” and keep the benchmark interest rate at near zero.
Powell said the Fed wants Inflation expectations to be anchored at 2 percent, not below. Although he still believes that the United States will eventually achieve the inflation target, but is expected to “may take more than three years to achieve this goal.
He said the Fed will update its assessment of the issue quarterly and is committed to using all tools to achieve the inflation target, “We live in an era of enormous deflationary pressures globally, with essentially all developed economies failing to achieve the 2 percent inflation target.”
He expects inflation to move higher, but the rise will not be too large or sustained, and the Fed has the tools to respond if inflation rises at an unpopular rate. When asked about inflation risks, he said there is still a lot of idle capacity in the U.S. economy due to the new crown Epidemic.
When it comes to monetary policy, Powell reiterated that the Fed intends to maintain ultra-low interest rates and continue to make large asset purchases until the U.S. economy recovers further, while achieving full employment and price stability goals “may take some Time.
He said the Fed will be for the potential adjustment of QE policy as early as possible to communicate with the outside world. Specifically, the Fed wants to see “actual data” showing that it is approaching the target before slowing down bond purchases; slowing bond purchases is the first step in exiting the accommodative policy stance. Analysts say the market generally believes that tapering measures will not occur before early next year.
He also made clear yesterday that the Fed will not raise rates until the following three conditions are met: inflation has reached 2%; forecasters believe inflation will remain at that level or higher; and a range of statistics show the labor market is at maximum strength.
In Wednesday’s question-and-answer session, Powell once again focused on describing the current state of weakness in the U.S. labor market, such as
With 10 million fewer people employed in the U.S. than a year ago, the labor market has a large number of idle problems and a long way to go to achieve full employment, although it should be assumed that they will eventually return to the labor market after the epidemic ends.
The weakness of the U.S. economy is concentrated in a few specific industries such as hotels, restaurants and tourism, and the way to provide help to these industries is to firmly end the new crown epidemic.
Some analysts say that Federal Reserve officials have recently shifted their focus to building a strong labor market, which they believe has important benefits for the economy as a whole. As a result, reducing unemployment and boosting economic recovery have taken priority over curbing inflation risks. What’s more, the Fed switched its policy-setting framework last August and will not pre-emptively raise interest rates early to curb potential inflation because of falling unemployment.
When asked whether to see the formation of asset bubbles, Powell said “the situation is complex”, although according to some indicators, “some asset prices are high”, but other aspects of financial stability “moderate “In particular, the level of leverage and financing risks in the financial system.
When asked about the “digital dollar,” he said that the design of digital dollars would not be allowed to undermine the U.S. financial system, that the Federal Reserve would need to exercise caution in designing digital dollars, and that congressional legislation and authorization would be needed for their issuance, but that this would be an important year for digital dollars.
Discussions about a digital currency backed by the Fed are heating up, and the Boston Fed is working with experts at MIT on a U.S.-backed digital currency. Some economists believe the Fed will one day be able to execute a stimulus program by depositing dollars directly into U.S. bank accounts. The Fed will contact Congress in 2021 on the issue of a digital currency.
Other observers noted that Democratic lawmakers are currently working to push through a new $19,000 stimulus bill by Friday, but Powell tried to avoid commenting on the plan during the hearing, not even saying whether he thought the economy needed more financial support. He simply said that past relief bills have proven vital to the economic recovery, but that the U.S. government ultimately needs to put its budget on a more sustainable path.
In addition, Powell was asked about the London Interbank Offered Rate (LIBOR), saying that legislation may be needed in Congress to end the use of LIBOR as an interest rate benchmark; the stated plan is to stop using LIBOR by mid-2023. The Fed is studying climate change from a regulatory perspective, but the central bank is not a climate change policymaker.
Along with Powell’s speech, risk sentiment lifted. The three major U.S. stock indexes rose in the short term, the Dow and S&P stopped falling and turned up, opening nearly two hours, the Nasdaq also turned up, after once falling 1%, while the Dow rose nearly 300 points and set a new intraday record high. New energy car stocks rose in general, tesla rose 5%, chip stocks have also turned up, and economic recovery-related cruise ships, airlines, banking stocks rose continued to expand.
The dollar index stood steady above 90 and once touched a daily high, and bitcoin regained above the $50,000 mark. However, the U.S. bond market was little changed, with the 10-year U.S. bond yield trading at 1.38%, having touched 1.42% before the U.S. stock market opened on Wednesday, setting a new one-year high.
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