Fed Chair: Achieving ‘Substantial Further Progress’ Is Still a Ways Off
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According to Federal Reserve Chair Jerome Powell, the U.S. economic recovery is yet to allow the scaling back of the central bank’s substantial monthly asset purchases, as inflation likely to stay high in coming months.
Powell Discusses The Economy's Progress
Before the House Financial Services Committee, Powell said on Wednesday that the Fed had discussed the economy's progress in June’s meeting, and asserted that “While reaching the standard of 'substantial further progress' is still a ways off, participants expect that progress will continue.”
As reported by the Financial Times, the hearing in which the Fed is due to present its semi-annual Monetary Policy Report to Congress will take place today at noon, Washington time.
Despite the economy showing positive signs of a comeback, central bankers in the U.S. are doing their bit by keeping interest rates close to zero and buying $120 billion of bonds every month.
“Job gains have been solid and inflation has jumped, though officials say that’s due to temporary supply glitches as the economy reopens from the pandemic,” Bloomberg reports.
Asset Prices and Risk Appetite Have Increased
Expert critics say that the laidback monetary policy, plus the substantial government spending are stretching the economy thin, as the Bureau of Labor Statistics (BLS) announced that CPI had increased to 5.4% from the same month last year.
Powell said, “Strong demand in sectors where production bottlenecks or other supply constraints have limited production has led to especially rapid price increases for some goods and services, which should partially reverse as the effects of the bottlenecks unwind.”
“Prices for services that were hard hit by the pandemic have also jumped in recent months as demand for these services has surged with the reopening of the economy.”
However, chairman Powell pointed to how asset prices and risk appetite have increased, as he also downplayed any short-term threats coming from financial markets.
“Household balance sheets are, on average, quite strong, business leverage has been declining from high levels, and the institutions at the core of the financial system remain resilient,” he was quoted as saying in Bloomberg.
As Powell’s period as Fed chair will come to an end next February, the remarks before Congress on Thursday are set to be his last semi-annual testimony. It will be up to President Joe Biden to resolve if Powell will be another four years as head of the entity.