The governor of the US central bank, Jerome Powell, paves the way for the initiation of tapering, albeit, as expected, without providing a precise timetableor. From the Jackson Hole symposium, the number one of the Fed in his expected speech defined, in fact, “appropriate” the beginning of the process of reducing asset purchases from 2021 but this “is not intended as a direct signal on the timing of an increase in interest rates “.
A premature tightening of monetary policy would be “particularly damaging”, he stressed. According to Powell, “the pandemic remains a threat to growth” and the Delta variant “presents a short-term risk”. “Times are tough, but the economy is on the right track and the pace of recovery has exceeded expectations”, he said again adding that in any case the Fed will monitor the incoming data and the evolution of risks. Markets are toasting and, from Wall Street to Europeans, improve their performance.
The start of tapering by 2021 appropriate
At the Fed’s latest policy meeting in late July, “I was of the opinion, like most attendees, that if the economy evolved as broadly as expected, it might be appropriate to start reducing the pace of asset purchases this year. “explained Powell. And if on the one hand, the pace of recovery “exceeded expectations” as well as there have been gods “clear progress” in the labor market on the other hand continues to weigh “the further spread of the Delta variant”, for this reason “incoming data and evolving risks will be carefully evaluated”.
A premature rate hike would be detrimental
“The timing and pace of the impending reduction in asset purchases is not intended to provide a direct signal as to the timing of the interest rate hike,” for which we have articulated a different and substantially more rigorous test, “assured Powell.
“We have said that we will continue to hold the target range for the federal funds rate at the current level until the economy reaches conditions consistent with maximum employment and inflation reaches 2% and is well on its way to. moderately exceed 2% for some time, “added the head of the Fed.
“If a central bank tightens policy in response to factors that turn out to be temporary – he noted – the main effects of the policy are likely to come after the need has passed. The inappropriate political move – Powell pointed out – unnecessarily slows hiring and other economic activities and pushes inflation below desired.. Today, with a substantial easing of the labor market and the pandemic continuing, such a mistake could be particularly damaging. We know that long periods of unemployment can mean permanent damage to workers and to the productive capacity of the economy. ”
However, the number one of the Fed pointed out, “history also teaches that central banks cannot assume that inflation due to transitory factors will decrease”.
The increase in inflation will be temporary
According to Powell, inflation at these levels “is obviously a cause for concern” however, it is “mitigated by a number of factors that suggest that these high readings may prove to be temporary. This assessment is critical and ongoing and we are closely monitoring incoming data.”
And while inflation is firmly in line with the Fed’s 2% target, there is still a long way to go, according to the head of the Fed, to achieve the goal of full employment, thus confirming that the US central bank will move with caution and flexibility so as not to jeopardize the exit from the pandemic crisis