Powell says the Fed remains to be a great distance from altering coverage and expects inflation to ease

Federal Reserve chairman Jerome Powell said Wednesday that the economy must continue to improve before the central bank changes its ultra-loose monetary policy.

In remarks prepared for the House of Representatives Financial Services Committee, the central bank chief noted improvements but said the labor market in particular is still well below what it was before the Covid-19 pandemic broke out.

Powell noted that the Fed’s benchmark for “significant further progress” towards full employment and stable prices is still “a long way off.” He noted that at least Fed officials are talking about reducing the pace of asset purchases.

Speaking of inflation, Powell said it was “up noticeably and is likely to stay high for the months ahead before it eases”.

But he stuck to his oft-voiced belief that the current surge is temporary and will be offset when conditions return to normal. He stressed that much of the current price pressure comes from a few industries, such as used cars, which are sensitive to temporary conditions. Several members of the House of Representatives pushed him on the current inflation trends.

“It’s all the same story. It’s a shortage in semiconductors. There’s also very high demand for various reasons,” Powell said in response to a question from Rep. Madeleine Dean, R-Pa. “It’s just a perfect high demand and low supply storm and it should pass. Unless we believe there will be a multi-year, long-term shortage of used cars in the United States, we should consider this temporary, many think it is. “

A question of “progress”

Urged during the hearing to explain what “significant further progress” will mean, Powell said that when it comes to employment, it is “very difficult to be specific”.

“It’s really a very wide range of things,” he added. He said the Fed would “make many announcements” before considering tightening policy.

Markets have been watching Fed communications for clues as to when the central bank will begin reducing its minimum monthly bond purchases of $ 120 billion while rates remain anchored near zero.

Powell noted that the two policies “combined with our strong forecast for interest rates and our balance sheet will ensure that monetary policy will continue to provide strong support to the economy until the recovery is complete”.

The Chairman’s comments came as part of his mandated bi-annual testimony to Congress on the state of monetary policy and the economy.

As in the past, Powell found that the pandemic blow to the economy hits those who can least shoulder it.

“Conditions in the labor market have continued to improve, but there is still a long way to go,” he said. “Employment gains should be strong in the months ahead as public health conditions continue to improve and some of the other pandemic-related factors that weigh on them now decrease.”

While the unemployment rate has fallen from its pandemic high of 14.8% to 5.9%, the Fed is focused on an inclusive employment mandate across race, gender and income group.

“Despite significant improvements for all races and ethnic groups, the hardest hit groups still have the most land to reclaim,” Powell said.

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