Fed’s Powell Says Time to Cut Asset Purchases, But Not to Raise Rates

Federal Reserve (Fed) Chairman Jerome Powell said the United States central bank should start reducing its asset purchases soon, but should not raise interest rates yet because employment is still very low and Inflation will ease next year as COVID-19 pressures ease.

“I think it’s time to cut back on bond purchases; I don’t think it’s time to raise rates. We believe we can be patient and allow the job market to recover“, he pointed Powell in a virtual conference.

Such an outlook, Powell emphasized, is only the most likely scenario, adding that if inflation, which is already higher and lasts longer than expected, moves persistently higher, inflation Fed would act.

“Our monetary policy is well positioned to manage a variety of plausible outcomes. “, he remarked.

The Fed is about to begin withdrawing some of its support for the economy in times of crisis by reducing monthly purchases of Treasuries and mortgage-backed assets by $ 120 billion, a move it has signaled it could take. next month.

However, the central bank faces a delicate balancing act in its dual mandate of seeking full employment and price stability.

Consumer prices have risen to more than double the target of 2% of the FedBut employment is still well below its pre-pandemic level.

And, he pointed Powell, “Supply constraints and high inflation are likely to last longer than expected and well into next year, and so is pressure on wages”.

The most likely scenario is that inflationary pressures will diminish and job growth will resume its pace from last summer, he said, but “if we saw a risk of inflation moving persistently higher, we would certainly use our tools”. For now, he assured, Fed it will watch and wait.

“Although the time is approaching to reduce our asset purchases, it would be premature to tighten policies using rates now, with the effect and intention of slowing employment growth, when there are good reasons to expect us to return to strong employment growth and so that supply restrictions decrease, which would have the effect of increasing the economy’s potential output“, he pointed.