Powell waves inflation worries away as Fed holds rates near zero
Jerome Powell had a ready answer to counter criticism that the Federal Reserve is running risks with inflation, as he signaled it will maintain aggressive support as the U.S. recovery gathers speed.
“The economy is beginning to move ahead with real momentum,” the Fed chair told reporters Wednesday after the central bank held interest rates near zero and kept bond purchases at $120 billion a month.
That’s likely to push up prices amid surging demand, but “an episode of one-time price increases as the economy re-opens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation,” he said.
Powell was dismissive of anecdotes of labor shortages, explaining it mostly as an allocation problem, while also noting that millions of workers thrown out of employment during the pandemic are still on the sidelines.
He also said that employers didn’t seem to be bidding up wages yet, despite the claims of scarcity in some sectors. And he played down the rise of goods prices as a matter of supply catching up with demand as a recovery takes hold.
During one detailed answer on inflation he appeared to be reading from notes — reinforcing the impression that he’d expected to be confronted about price pressures amid ultra-easy Fed policy — and wasn’t going to back down.
“I took away that not even any preliminary discussion of a change in policy is imminent,” said Carl Tannenbaum chief economist at Northern Trust in Chicago. “He gave a spirited defense of the Fed’s view on inflation and employment. They are very happy with the course they are on and not likely to change it soon.”
Powell and his colleagues met amid growing optimism for the U.S. recovery, helped by widening vaccinations and aggressive monetary and fiscal support.
President Joe Biden will unveil a sweeping $1.8 trillion plan to expand educational opportunities and child care when he addresses a joint session of Congress later on Wednesday, while highlighting his $2.25 trillion infrastructure proposal and the $1.9 trillion pandemic relief package he signed into law last month.
At the same time, a rise in coronavirus cases in some regions around the world casts a shadow over global growth prospects, giving policy makers reason to remain patient on withdrawing support.