U.S. Federal Reserve Chairman Jerome Powell speaks during a press conference in Washington, DC, December 11, 2019.
Eric Baradat | AFP | Getty Images
Inflation and employment remain well below Federal Reserve targets, meaning easy monetary policy should stay in place, central bank chairman said Jerome Powell said Tuesday.
Despite a sharp rise this year in bond yields that accompanied increased concern about inflation, Powell said price pressures remain mostly subdued and the economic outlook is still “very uncertain.”
“The economy is far from our employment and inflation targets, and it will likely take some time for further substantial progress to be made,” the Fed chief said in remarks prepared for the committee. Senate finances.
He added that the Fed is “committed to using our full range of tools to support the economy and help make the recovery from this difficult period as robust as possible.”
However, the speech did not address the market’s most pressing concern: the 2021 jump in longer-term government bond yields to levels not seen since. Covid-19 pandemic. The 30-year bond, for example, rose by more than half a percentage point and the benchmark 10-year yield rose by 44 basis points.
Powell noted that the pandemic “has also left a significant footprint on inflation” and overall it is not a threat to the economy.
“After sharp drops in the spring, consumer prices partially rebounded over the remainder of last year. However, for some of the sectors hardest hit by the pandemic, prices remain particularly low,” he said. he says. “Overall, on a 12-month basis, inflation remains below our long-term target of 2%.”
The Fed revised its approach to inflation last year. In the past, he imposed preventative rate hikes when unemployment fell, believing a stronger labor market would push prices up.
Now he has taken an approach where he will allow inflation to average 2% above for a while before moving on to policy tightening.
“This change means that we will not tighten monetary policy just in response to a strong labor market,” Powell said.
As for the remainder of his economic assessment, Powell has been cautious, saying that while the gains have remained “patchy and far from complete,” the recent drop in coronavirus cases and continued vaccine rollouts offer hope. .
“While we should not underestimate the challenges we currently face, the developments indicate an improving outlook for later this year. In particular, the progress underway in vaccinations should help speed the return to normal activities. “, did he declare. “In the meantime, we must continue to follow the advice of health experts to observe social distancing measures and wear masks.”
Consumer behavior also presents a dichotomy, with spending on goods high, as evidenced by January successful retail sales, but spending on services remains low as many bars, restaurants and hotels across the country operate at limited capacity.
Powell also noted disparities in employment earnings, saying blacks, Hispanics and other minorities are still struggling even as the unemployment rate fell from a pandemic of 14.8% to 6, 3% currently.
He also noted that the housing sector “has more than fully recovered from the recession, while business investment and manufacturing output have also picked up.” The aggressive policies of the Fed and Congress were a big factor in the recovery, added Powell.