Jay Powell has sought to stamp out fears that the Federal Reserve will start cutting back on asset purchases later this year, saying the central bank was far from considering an “exit” from its assets. ultra-flexible monetary policies.
Speaking at a virtual event hosted by Princeton University on Thursday, Powell said the Fed knew it had to be “very careful in communicating about asset purchases” because of the ” real sensitivity ”of investors to the potential withdrawal of central bank support to the economy.
“Now is not the time to talk about exiting,” said Powell. “[One] The lesson from the global financial crisis is this: be careful not to get out too early, and don’t try to talk about getting out all the time. . . because the markets are listening. ”
The Federal Reserve Chairman added that when the central bank had “clear evidence” of progress towards its employment and inflation targets, it would “inform the world” of its asset purchasing policies.
“We will communicate very clearly to the public and we will. . . well before actively considering starting a gradual reduction in asset purchases, ”he said.
Comments from several regional Fed chairmen since the start of the year have fueled speculation that the US central bank may consider ending its asset purchase program as early as this year.
The remarks rattled investors, who had assumed the policy would remain in place until 2022 at the earliest, and helped accelerate a sale of US government bonds which began after the second round of elections in Georgia last week which shifted control of the Senate in favor of the Democratic Party.
Mr Powell’s assurances follow similar remarks by Richard Clarida, vice president, and Lael Brainard, governor, this week, stressing that the Fed is in no rush to withdraw support and wants to avoid a repeat of the ” taper tantrum ”that rocked the markets in 2013 after its last long period of quantitative easing.
The latest discouraging labor market data, including net job losses in December and a surprise increase in unemployment claims for the first time last week also reported a huge slack remaining in the labor market.
“Right now, the economy is at a standstill. I don’t know how long this will last, but we are still far enough away from where we need to be to access full employment, ”Eric Rosengren, Boston Fed chairman, told the Financial Times this week. “As long as this is true, we must continue to put in place an asset purchase program that will continue to provide housing,” he said.
Treasuries sold off nonetheless as Mr Powell spoke on Thursday. Yields on benchmark 10-year Treasury bills, which rise as prices fall, climbed 0.05 percentage point to 1.13%.
Mr Powell’s dovish stance was bolstered by comments on inflation, in which he suggested the Fed would not overreact to a sudden but temporary rise in consumer prices this year as the economy continues. would rebound after the pandemic.
“The real question is how big will this effect be and will it be persistent?” Because it is clear that a one-time price increase that is not very large is very unlikely to mean consistently high inflation, ”he said, highlighting both the difficulties in the labor market and the global low interest rate environment.
“When the time comes to raise interest rates, you know, we definitely will,” he said. “And this time, by the way, it’s not the time anytime soon.”