Federal Reserve chairman Jerome Powell said the central bank could start reversing its monetary policy as early as this year – predicting that inflation, while worrying, is temporary and will ease in the coming months.
At the Kansas City Federal Reserve Bank’s annual symposium, Powell highlighted job growth and economic recovery and said, “It may be appropriate to start slowing asset purchases this year.”
Powell added that the $ 120 billion reduction in monthly bond purchases shouldn’t hurt the economy. “Even after our stock purchases end, our increased holdings of long-term stocks will continue to support accommodative financial conditions,” he said.
Powell did not say when the Fed would hike rates – a topic of discussion at the September 21st Fed meeting – but suggested that it was not imminent. Ahead of a rate hike, Powell said the Fed would try to keep inflation at 2 percent and ensure employment growth is sustained.
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“The timing and pace of the impending reduction in asset purchases is not intended to be a direct signal of the timing of future rate hikes,” added Powell.
Powell’s speech comes as the debate over inflation and bond purchases reaches a climax. On Thursday and Friday, four different Federal Reserve officials called for an end to policies as inflation spikes.
The meeting, which is typically held in Jackson Hole, Wyoming, was held virtually for the second year in a row. Conference organizers announced just last week that they were moving from a face-to-face event to a virtual format for fear of the ultra-contagious Delta variant.
The recent surge in coronavirus cases hampered both the conference and the Fed’s plans to slow the pace of bond purchases and potentially hike rates. Still, Powell said he believed Delta was only a “short-term” risk.
In a Friday morning interview with CNBC, Loretta J. Mester, President and CEO of the Federal Reserve Bank of Cleveland, said, “We just don’t need the same type of accommodation that we needed at the height of the crisis, and I’m comfortable with it we met our conditions. “
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Powell spent much of his speech discussing inflationary concerns, noting that responding to inflation can “do more harm than good” because inflation is often “transitory”.
“Inflation at this level is of course worrying. But that concern is mitigated by a number of factors that suggest these elevated levels are likely to prove temporary, ”he said.
Market watchers paid close attention to Powell’s remarks – and appeared largely satisfied with his message. After his speech, the Dow Jones industry average rose more than 227 points to 35,440.50 on Friday.