Powell praises economic recovery and sees Fed pulling back help after ‘substantial’ progress
Federal Reserve Chairman Jerome Powell prepares for a House Financial Services Committee hearing on “Monitoring the Treasury and Federal Reserve’s Pandemic Response” at the Rayburn House Office Building in Washington, DC on December 2nd 2020 before.
Jim Lo Scalzo | Reuters
Federal Reserve chairman Jerome Powell said the US economy has recovered faster than expected thanks to strong congressional tax aid coupled with accelerated vaccine distribution.
At some point this will allow the central bank to recall the aid it has given, although he said now is not the time.
“As we continue to make significant progress toward our goals, we will gradually reduce the amount of treasury and mortgage-backed securities we purchase,” Powell said in a live interview on NPR’s Morning Edition. “Over time, when the economy has recovered almost completely, we will, very gradually and with great transparency, withdraw the support we gave in times of need.”
US stock market futures fell a little after Powell spoke.
After the Covid-19 pandemic just over a year ago, the Fed cut short-term benchmark rates to near zero and bought at least $ 120 billion worth of bonds every month.
Powell and other Fed officials have pledged to maintain these arrangements until the economy reaches full employment and inflation averages 2%. He said the US had made progress towards these goals.
“In short, it’s a combination of better developments on Covid, especially the vaccines, and also economic support from Congress. That’s really what drives it,” he said. “This will allow us to reopen the economy earlier than expected.”
The US vaccinated nearly 2.5 million people a day, and hospitalization and death rates have generally fallen, although the case load is plateauing or rising in some states.
Congress approved more than $ 4 trillion in incentives last year and may consider another $ 3 trillion for future spending.
Powell described current fiscal practices as “unsustainable” even though they are necessary in light of the crisis. Low interest rates allow the US to shoulder the debt without causing too much harshness, although Congress must eventually address the debt problem, he said.
“We have to do this, but that time is not now,” Powell said.
Looking back on the past year, he said he had no regrets about the extraordinary measures taken by the Fed, although some critics fear that the level of fiscal and monetary stimulus could prove problematic later if the economy overheats.
“Ultimately, what we did in a crisis served its purpose to ward off far worse results,” said Powell.