Powell says economy could face Fed tightening, Omicron boom – World Affairs SRS

Powell says economy could face Fed tightening, Omicron boom

– World Affairs SRS

Fed Chair Jerome Powell said Tuesday that the Federal Reserve’s plan to tighten monetary policy this year should not undermine strong employment in an economy that is “no longer needed or needed”.

Powell, in testimony before the US Senate Banking Committee, said he expects the country to stay in power through the current surge in coronavirus cases, with any “short-term” impact on the economy and possibly raising and lowering interest rates. The Fed will not derail the plans for Asset Holdings this year.

Powell told lawmakers, who appeared to be leaning toward supporting him for a second four-year term, that it was inflation now – not fueling more job growth or guarding against a coronavirus slowdown – that the Fed’s The main focus which is the increase in prices. 40-year high and well ahead of the Fed’s 2% target.

Indeed, Powell told the Democratic-controlled panel that stabilizing prices was necessary to keep economic expansion and job growth going.

“Inflation is running well above target. The economy no longer needs or wants those very favorable policies,” Powell said. But “it’s a long road” to getting monetary policy back to normal, and when it was time to end the Fed’s pandemic emergency policies, “should not have a negative impact on the job market.” The focus of lawmakers during the hearing was on inflation, and Powell said he still thinks that while the level of price rise requires the Fed to act, some relief will go beyond monetary policy as global supply chains rise. Catching up with demand. Powell said the mistake is expected to be a rapid adjustment, which is why the Fed first dismissed rising inflation as “transient” last year, only to see it continue to rise.

He said he now thinks inflation will subside by the middle of this year, but the Fed was prepared to do what was necessary to prevent high rates of price increases from “infiltrating.” “We have to be polite, but a little nimble,” Powell said, citing when and how fast to raise interest rates and change the Fed’s asset holdings, which have shed $8 trillion as a result of its pandemic. has become more. Related support for the economy. Powell said no decision had been made on whether to normalize the policy, but it was likely that the Fed would decide to reduce the balance sheet “quickly and rapidly” than after the 2007-2009 recession.

US stocks, which have started the year on a weak note, as the Omicron version fueled a surge in COVID-19 cases and investors repositioned for a Fed more intent on controlling inflation through higher interest rates is, held during Powell’s testimony. Returns on short-dated Treasury securities, backed by pandemic-era highs, rose earlier in the session.

Rate of interest

The hearing is the first step in the expected confirmation of Powell by the full Senate for a new four-year term as Fed chairman. Lyle Brainard, currently a Fed governor, will be questioned by the same panel on Thursday for promotion to a four-year term as Fed vice president.

The positions require majority approval by the full Senate, which is controlled by President Joe Biden’s Democrats.

At the start of Tuesday’s session, Democratic Senator Sherrod Brown, the panel’s chairman, and Senator Pat Tomei, its senior Republican, backed Powell’s management of the Fed’s response to the pandemic, even as he spoke of its next steps. also raised questions about

“I believe you have shown the leadership,” Brown said in leading the Fed through debate over inflation, regulation and an ethics scandal over stock trading by senior officials.

Tommy said he was concerned that the Fed’s strong response to the pandemic could now stoke inflation and “be the new normal,” and reiterated his criticism of the central bank as political issues such as climate change and inequality. What do you believe?

Even as the pandemic continues, inflation has emerged as the Fed’s main concern.

In December, the central bank decided to end its purchases of treasuries and mortgage-backed securities by March – a legacy of its nearly two-year battle with the economic fallout of the pandemic – and indicated that it would raise interest rates three times this year. can increase. ,

Since then, COVID-19 infections have risen to a record daily, with hospitalizations and workers leaving the already stretched labor supply, and some observers expect a mismatch between supply and demand that will affect prices. Putting more pressure on.

Investors and traders will be listening for new clues as to when the Fed may begin raising interest rates and possibly reduce its bond holdings to tame inflation.

Financial markets are pricing in an aggressive response, with interest rate futures traders betting on four rate hikes this year.

Powell could face tough questions from both some Democrats, including Senator Elizabeth Warren, who has said she opposes her nomination because she sees him as too easy on Wall Street, and from some Republicans who have been in public. Rupp is concerned that the Fed is reacting too late to rising prices.

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