In just four days, Fed Chairman Jerome Powell twice mentioned the “inflection point” of accelerated growth in the U.S. economy and reiterated that inflation is allowed to be higher than 2% for a period of time, once again sending the signal to keep monetary easing in recent years. Although senior Fed officials this week for the first time since the outbreak of the new crown epidemic clearly mentioned the roadmap for QE tapering, Powell did not mention the issue this time.
The U.S. economy has entered a period of accelerated growth and is expected to maintain near-zero interest rates in recent years No mention of a roadmap for tapering QE
In an online interview at the Forum Washington Athletic Club on Wednesday, local time, Powell said the U.S. economy appears to be at an inflection point, with economic and job population growth entering a period of acceleration. A surge in new cases of coronary pneumonia remains one of the risks to the economy. Racial inequality is holding the economy back.
He said the Federal Reserve is concerned about the short-term business cycle. For the U.S. economy, what really matters is investment, investment in the education of the people and an inclusive economy (inclusive economy). In terms of the epidemic, the most important thing right now is public health policy, followed by fiscal policy. Fiscal policy is involved, and that’s what makes this cycle different.
Coincidentally, Powell also mentioned the word inflection point when commenting on the economy during an interview with CBS last Sunday. At the time, he said the U.S. economy appears to be at an inflection point due to widespread vaccinations and strong fiscal support and monetary policy support, “We feel like we’re going to grow much faster now and create jobs much faster.”
On monetary policy, Powell said most Fed officials believe that the Federal Reserve Monetary Policy Committee FOMC will not raise interest rates through 2024. Adjustments to monetary policy will be based on outcomes, not on dates. Rate hike action depends on the progress made by the economy, and the likelihood of action before 2022 is extremely low. The Fed is expected to taper QE first before raising rates.
Powell’s statement and the Fed’s most recent monetary policy meeting to send a signal in the same vein. Last month, the Fed’s post-meeting resolution said it would maintain the current scale of QE bond purchases until “substantial further progress” toward the Fed’s inflation and employment targets. The latest interest rate expectations dot plot released after the meeting showed that, as with the previous dot plot released in December last year, all Fed officials are expected to not raise interest rates this year, most officials are still expected to not raise interest rates in the next two years, but is expected to raise interest rates in 2023, the year after the increase of two people to seven people compared to the previous meeting.
It should be noted that although QE tapering is expected to precede rate hikes, Powell did not specify what kind of tapering as St. Louis Fed President Bullard did this Monday.
Bullard said at the time that it was too early to consider tapering the Fed’s bond-buying program, but it does have a roadmap, such as when vaccination rates reach 75 percent, when QE tapering can be discussed. The media has since estimated that the U.S. will by and large reach 75% vaccination rates this August at the current rate, with 500 million doses on August 9.
Inflation can be moderately higher than 2% for a period of time Inflation reaches the target before considering a rate hike
For inflation, Powell said on Wednesday that the Fed wants inflation to be above 2 percent for a period of time, but did not specify how long “for a period of time” is.
“We seek a period of time when inflation is moderately above 2 percent.”
“We do want inflation to be 2 percent, we want it to be 2 percent on average, and that means we want it to be above 2 percent after (inflation) has been below 2 percent for some time.”
Powell also said the Fed will wait until it achieves its inflation and employment attainment targets before considering rate hikes. The Fed can lower the unemployment population while avoiding triggering inflation.
Last month’s post-meeting press conference, Powell has said that the Fed needs to see actual inflation “substantial and sustained above 2% target”, rather than “expected to exceed 2%”, and only after the easing will begin to taper. The minutes show that Fed officials at last month’s meeting stressed that the U.S. economy is “far away” from the longer-cycle target, and they believe that in terms of employment and inflation, it may take some time to make further substantial progress.
Last Thursday Powell said at the IMF’s annual spring meeting that he hoped to see real inflation and employment progress before tapering QE. He reiterated at the time that the upswing in inflation would be temporary and that the Fed had the tools to deal with excessive inflation.
Asked on Sunday when the Fed will start to “put the brakes” on the economy, Powell replied, until the labor market has basically completed the recovery, to achieve full employment, and inflation back to 2%, and is expected to rise to more than 2% in a period of time, we will consider raising interest rates.
Now is not the time to consider long-term debt sustainability Cryptocurrency is not a means of payment is a speculative tool
For fiscal policy, Powell said the Fed will not advise Congress in this regard. He argued that the federal government’s budget is on an unsustainable path in the long run, but added that current debt levels are very sustainable and “there’s no question that we’ll be able to service the debt for the foreseeable future” and that now is not the time to worry about long-term debt problems. The key lesson left by the new crown epidemic is that fiscal policy has important implications.
Turning to climate change, Powell said the large banking institutions are very focused on climate risk. The rationale for the Fed’s focus on climate change is that the Fed’s job includes getting financial institutions to understand risk and to manage it, and climate change is one of those risks.
Bitcoin, the world’s number one cryptocurrency, has been hitting new highs recently. Powell also mentioned cryptocurrencies, saying that the Fed prefers to view them as crypto assets, and that they are really more of a speculative tool than a means of payment, and they are more like gold.
Powell said that innovation is a positive thing and related activities need to be treated equally with the same regulation as in the past, and as non-bank financial institutions grow, the Fed has to do more to meet these challenges.
Powell also mentioned his predecessor, former Fed Chair Yellen, who is now the U.S. Treasury Secretary, saying his relationship with Yellen was “not awkward at all. He is honored to be the Fed chairman, the president and the Fed chairman meetings are very frequent, he has not yet met with the current president Biden, but every week and Yellen on the phone.
Recent Comments