The Federal Reserve will start dialing back its ultra-low-rate policies this year as long as hiring continues to improve, Chair Jerome Powell said Friday, signaling the beginning of the end of the Fed's extraordinary response to the pandemic recession. Investors seemed to like the sentiment, with markets rising, notes the Wall Street Journal. The Dow was up more than 230 points. The Fed's move could lead, over time, to somewhat higher borrowing costs for mortgages, credit cards, and business loans, per the AP. The Fed has been buying $120 billion a month in mortgage and Treasury bonds to try to hold down longer-term loan rates to spur borrowing and spending.
Powell's comments indicate the Fed will likely announce a reduction—or "tapering"— of those purchases sometime in the final three months of this year. In a speech given via webcast to the Jackson Hole Economic Symposium, an annual conference of central bankers, Powell stressed that the beginning of tapering doesn't signal any plan to start raising the Fed's benchmark short-term rate, which it has kept near zero since the pandemic tore through the economy in March 2020. Rate hikes won't likely start until the Fed has finished tapering its bond purchases. But Powell said inflation has risen enough to meet its test of "substantial further progress" toward the Fed's goal of 2% annual inflation over time, which was necessary to begin tapering.
A sharp jump in inflation has put the Fed's ultra-low-interest rate policies under growing scrutiny, both in Congress and among households being squeezed by surging prices. Inflation, according to the Fed's preferred gauge, rose 3.6% in July compared with a year earlier, the biggest jump in three decades. The month-to-month increase slowed from 0.5% to 0.3%. At their last meeting in late July, most Fed officials said, if the economy continued to improve, it would be appropriate to begin reducing the Fed's bond purchases later this year, per minutes from the meeting released last week.
story continues below
However, the resurgence of the pandemic, led by the delta variant, has complicated matters, with the potential to slow spending in such areas as air travel, restaurant meals, and entertainment. Fed officials are also afraid that fears discouraging Americans from seeking jobs, such as fear of catching the virus, may potentially postpone the point at which the Fed can gain a clear read on the job market. Powell noted that the central bank is monitoring the economic impact of delta, which has caused a sharp spike in COVID-19 cases in the US. "While the delta variant presents a near-term risk, the prospects are good for continued progress toward maximum employment," he said.
(More
Federal Reserve stories.)
,
uBlock 
,
and
Ghostery 
)
