Powell indicates Fed not about to change its tactics

WASHINGTON — Federal Reserve Chairman Jerome Powell sought Thursday to tamp down any concerns that the Fed might soon withdraw some of its support for the U.S. economy and stressed that any such pullback would be signaled far in advance.

During an online discussion hosted by Princeton University, where Powell earned his undergraduate degree, he said the economy’s recovery from the pandemic recession is still far short of its goals.

The Fed had said after its last policy meeting last month that it would continue to buy $120 billion in bonds each month until the economy made “substantial further progress” toward the Fed’s goals of maximum employment and stable 2% inflation.

“When that happens — and we can see that clearly — we’ll let the world know,” Powell said. “We will communicate very clearly to the public and we’ll do so well in advance before actively considering any tapering of asset purchases.”

The bond purchases are intended to hold down longerterm interest rates to encourage consumers and businesses to borrow and spend. Lower rates on 10-year Treasurys, for example, reduce borrowing costs for home and car buyers. At the same time, the central bank is keeping its benchmark short-term rate at a record low near zero to help support the economy.

Powell also stressed that the Fed probably won’t raise its rate until inflation has topped 2% for some time.

“When the time comes to raise interest rates, we’ll certainly do that,” he said. “And that time, by the way, is no time soon.”

Powell’s remarks Thursday follow recent speculation in financial markets that the Fed might start reducing its bond purchases as early as this year, sooner than previously expected. Investors have been selling Treasuries, increasing the yield on the 10-year Treasury note in the past week to about 1.13% as of Thursday, up from 0.9%.

The speculation was fueled by comments from several regional Fed bank presidents, including Raphael Bostic of the Atlanta Fed and Robert Kaplan of Dallas. Bostic said last week that he was “hopeful that in fairly short order we can start to recalibrate” the bond purchases. Bostic is a voting member of the Fed’s policy-making committee this year.

Members of the Federal Reserve’s Board of Governors, who carry particular weight on rate decisions, have stressed that any tapering of bond purchases won’t occur for months at least. One of them, Richard Clarida, said Jan. 8 that he thought the purchases were likely to continue at least into next year.

And Lael Brainard, another governor, said Wednesday that the current level of bond buying “will remain appropriate for quite some time.”