Powell says the U.S. economy can withstand the Fed’s tightening and the Omicron surge

File Photo: Federal Reserve Chairman Jerome Powell testified at a Senate Bank, Housing and Urban Affairs Commission hearing on September 28, 2021 at the Hart Senate Office Building in Washington, DC, USA. increase.

January 12, 2022

Howard Schneider and Anne Safir

(Reuters)-Federal Reserve Chair Jerome Powell pointed out the possibility of a second term confirmation as head of the U.S. central bank at a parliamentary hearing on Tuesday that the economy will be on current COVID-19. The surge had a “short-live” effect and was ready to launch more stringent monetary policy.

Powell focused primarily on how the Fed planned to deal with inflation running at highs for decades, why central banks misdiagnosed a surge in price increases, and more stringent monetary policy. Inflation means job growth that was publicly approved by the Republican and Democratic parties at the Senate Banking Commission in the session.

The Federal Reserve has decided to prevent central banks from “fixing” high inflation, raising policy rates and outflowing asset holdings to maintain the current economy, rather than slowing job growth. Said it was necessary. Expansion is in progress.

If prices continue to rise, the Fed could be forced to rise sharper than this year’s three-quarter rate hike -Response-Post-Temporary-World-2021-12-15 The policymaker now expects to be at risk of returning to recession.

“Inflation is well above target. The economy no longer needs or wants the very accommodative policies we have implemented,” Powell said in his testimony.

Still, the Fed’s benchmark overnight interest rates are close to zero, assets are close to $ 9 trillion, and Powell said it’s a “long way” to something close to restrictive policy. Meanwhile, the Fed’s actions “should not adversely affect the job market,” he added.

“Without price stability, we can’t get the most employment, so we need to focus on controlling inflation.”

“Bit light”

The hearing could have been combative. Some Democrats have criticized Wall Street surveillance, announcing opposition to the reappointment of Powell, who was promoted to the highest position in the federal government by former President Donald Trump. The stock trading scandal and the resignation of several senior officials have hurt the Fed’s image. Some Republicans also claim that they are making central banks partisan on issues such as climate change and economic inequality.

However, it was largely stable and focused on core economic issues. Powell provided his full comment on how the unprecedented increase in coronavirus cases affected his outlook.

Despite the turmoil in school education, travel and even some core services, “what we are seeing is an economy that works with these waves of COVID,” Powell said.

The main themes are inflation, the Fed’s misdiagnosis of “temporary” last year, and plans to stand in front of it now that the central bank has significantly exceeded its 2% target.

Powell said the level of inflation requires Fed action, but he still feels that the global supply chain is starting to keep up with demand, providing some relief beyond monetary policy. According to Powell, the Fed initially dismissed last year’s rise in inflation as it could decline without the Fed’s response, as it misunderstood that adjustments would be swift, but inflation in the 1970s. Prices continue to skyrocket to levels never seen since the Fed’s horror. 1980s.

He now believes inflation will ease by the middle of this year, but said the Fed is ready to tighten borrowing costs as needed to ensure it does.

“We need to be humble, but we have to be a little agile,” Powell said when and how quickly the Fed’s wealth holdings surged as a result of pandemic-related financial support. I mentioned it when deciding whether to do it. ..

Powell gave no new hints on when to raise interest rates, which many analysts expect to start in March. He also hadn’t decided when to reduce the central bank’s wealth holdings, but it could happen “earlier and sooner” than after the 2007-2009 recession, which the Fed had waited about twice. Said it was expensive. A few years after raising the initial interest rate to shrink the balance sheet.

In Powell’s testimony, U.S. stocks began this year in a weak tone as a variant of Omicron spurred a surge in COVID-19 cases and investors were relocated to a federal government more intended to curb inflation. Has risen. Yields on short-term government bonds have fallen from highs during the pandemic era.

Rate hike

The hearing was the first step in Powell’s expected confirmation of the new four-year term. Rael Brainard, now Governor of the Federal Reserve Board, will be asked by the same committee on Thursday about his promotion to a four-year term as Vice-Chairman of the Federal Reserve Board.

At the start of the session on Tuesday, Democratic Senator Sherrod Brown and his senior Republican Senator Pat Toomey supported Powell’s management of the Federal Reserve’s response to the Pandemic.

Mr Brown said he “showed leadership” leading the Fed through discussions on inflation, regulation and the ethical scandal over stock trading by senior officials.

Concerned that the Fed’s strong response to the pandemic is now causing inflation and “potentially becoming a new normal,” Toomy delves into what he considers to be political issues such as climate change and inequality. He repeatedly criticized the central bank.

In December, the FRB decided to end the purchase of mortgage-backed securities with the Ministry of Finance, a legacy of the nearly two-year struggle against the economic collapse of the pandemic, by March, raising interest rates three times this year. Suggested that it can be done.

Financial markets are pricing at a rather aggressive pace this year with four rate hikes.

(Report by Howard Schneider, edited by Chris Reese and Paul Shimao)

Powell says the U.S. economy can withstand the Fed’s tightening and the Omicron surge

Source link Powell says the U.S. economy can withstand the Fed’s tightening and the Omicron surge

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