Dilemma for Fed chief: As virus surges, inflation remains high

WASHINGTON — Not long ago, anticipation was high that Federal Reserve Chairman Jerome Powell might begin to sketch out a plan this week for the Fed to start pulling back on its support for an economy that has been steadily strengthening.

That was before COVID-19 cases began accelerating across the country. Now, the decision of how and when the Fed should begin dialing back its help for the economy has become more complicated.

Yet in outlining his view of the economy and the threats it faces in a high-profile speech Friday, Powell may provide important clues to the timing of changes in the Fed’s ultralow interest rate policies.

The big question has been when the Fed will begin to slow its purchases of Treasury and mortgage bonds. The Fed has been buying $120 billion in bonds each month since the pandemic erupted in March 2020 to try to keep longer-term rates low and encourage borrowing and spending. It has also pegged its short-term benchmark interest rate at nearly zero since.

Powell will be speaking Friday at an annual conference of academics and central bankers. The conference, sponsored by the Federal Reserve Bank of Kansas City and normally held in Jackson Hole, Wyo., will instead be a virtual event for a second straight year. A surge of COVID-19 cases near the resort town delivered a direct impact on the Fed itself by forcing a last-minute cancellation of its in-person plans.

The hasty shift to an online event reflects the rapid rebound of the pandemic, led by the delta variant, particularly in the South and Northwest. It follows a sharp decline in confirmed cases earlier in the summer that had raised hopes that the coronavirus and its economic impact might be fading.

Just a few weeks ago, many Fed officials were signaling that the economy was making solid progress toward the central bank’s twin goals of maximum employment and annual inflation at just above 2 percent for a sustained period. Several presidents of regional Federal Reserve Banks said they wanted to announce a reduction, or taper, of the bond purchases at the Fed’s next meeting in September.