Powell: Economic recovery has “progressed more quickly” than anticipated 

Finance

Fed Chair Powell on U.S. economic recovery


Powell: Economic recovery has “progressed more quickly” than anticipated 


today, the FOMC kept interest rates near zero and maintained our sizeable asset purchases. These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete. The recovery has progressed more quickly than generally expected, and forecasts from FOMC participants for economic growth this year have been revised up, notably since our December summary of economic projections. In commenting on the stronger outlook, participants noted progress on vaccinations as well as recent fiscal policy. Looking ahead, FOMC participants project the unemployment rate to continue to decline. The median projection is 4.5% at the end of this year and moves down to 3.5% by the end of 2023. Overall inflation remains below our 2% longer run objective. Over the next few months, 12 month measures of inflation will move up as the very low readings from March and April of last year fall out of the calculation. Beyond these base effects, we could also see upward pressure on prices if spending rebounds quickly as the economy continues to reopen, particularly if supply belt bottlenecks limit how quickly production can respond in the near term. The median inflation projection of FOMC participants is 2.4% this year and declines to 2% next year before moving back up by the end of 2023. Could you talk us through how the the forecast for 2021 map into the substantial further progress definition? You know, 2.4% inflation? Understand, that's considered transitory. That still seems like some progress there. 4.5% unemployment. Is it time to start talking about talking about tapering yet? Uh, yet, Um So, uh, as you pointed out, we've said that we would continue asset purchases at this paste until we see substantial further progress. And that's actual progress, not forecast progress. So and that's a difference from from our past approach. So and what we mean by that is pretty straightforward. It is. We want to see that, uh, that the labor markets have moved. Labor market conditions have moved, you know, have made substantial progress toward maximum employment, and inflation has made substantial progress toward the 2% goal. That's what we're going to want to see now that obviously includes an element of judgment. And when we see we'll be carefully looking ahead. We also understand that we will. I want to provide as much advance notice of any potential taper as possible. So when we see that we're on track when we see actual data coming in, that suggests that we're on track to perhaps achieve substantial for their progress. Then we'll say So. How high are you comfortable letting inflation rise? There is some ambiguity in in your new target. As you mentioned, um, expectations driven, Um, and do you think that that ambiguity might cause markets to price in a lower tolerance for inflation? Then the Fed actually has thereby causing financial conditions to tighten prematurely. Is that a concern? Thanks. So we said we'd like to see inflation run moderately above 2% for some time, and we've resisted, basically, generally, the temptation to try to quantify that. Part of that just is talking about inflation is one thing. Actually, having inflation run above 2% is the real thing. So I over the years we've talked about 2% inflation as the global. We haven't achieved it, so I would say we'd like to, you know, perform. Uh, that's what we'd really like to do is to get inflation moderately above 2%. I don't want to be too specific about what that means, because I think it's hard to do that and we haven't done it yet. You know, when we're actually above 2% we can do that. I am. Look, I would say this. We are the fundamental change in our framework is, uh that we were not going to act preemptively based on forecasts for the most part. And we're going to wait to see actual data, and I think it will take people time to adjust to that and to adjust to that new practice. And the only way we can really build the credibility of that is by doing it. So that's how I would think about that.