Rtl today – Economic expansion: Fed’s Powell pledges to fight inflation in second term

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Pressures pushing prices to decades-long highs are expected to last through the middle of the year, and the US central bank is ready to respond to that risk, but policymakers have pledged to extend the economic expansion to promote jobs, Federal Reserve Chief Jerome said. Powell said Tuesday.

The world’s largest economy is on solid footing, and with rising inflation and picking up jobs, “the economy no longer needs or wants the very accommodating policy” provided by the United States. Fed in response to the Covid-19 pandemic, Powell told lawmakers, stressing the likelihood interest rate increases are coming.

Soaring prices for cars, housing and food have become a political responsibility for Democratic President Joe Biden, who in November asked Powell, a Republican, to continue in his role as Fed chief for four more. years, and also appointed Fed Governor Lael Brainard, a fellow Democrat, to serve as Powell’s vice president.

During the nomination hearing before the Senate Banking Committee, Powell again vowed that the Fed will do everything possible to ensure that high inflation does not take hold.

Economists predict that government data due Wednesday will show annual consumer price inflation to hit 7% in December, its highest level in 40 years, and the issue dominated senators’ questions.

Inflation is “very close to the top of the list” of risks to the economic outlook, said Powell, acknowledging that the current rate is now “very well above target.”

But the Fed chief attributed most of the surge in prices to a “misalignment” between supply and demand caused by global logistics grunts, although policymakers are also closely monitoring wage growth.

The central bank expects a “return to normal supply conditions” in the coming months, but “if we see inflation persist at high levels for longer than expected … we will use our tools to bring it back. inflation “.

– Promote full employment –

The Fed is in the process of ending its stimulus program to buy bonds, which will end in March, and is expected to raise the benchmark policy rate to zero shortly thereafter.

While Powell pointed out that policymakers had not decided on the timing or rate hikes, some economists and even some Fed officials said the first move could come in March.

“It’s time to step away from pandemic emergencies,” Powell said.

“The labor market is recovering incredibly quickly,” he added, with the unemployment rate falling “fairly close to half-century lows” to 3.9% in December.

Still, removing the stimulus “shouldn’t have negative effects” on jobs, Powell said.

In fact, getting prices back around the Fed’s 2% target is key to ensuring the U.S. economy continues to grow and attract more people to the workforce, he said.

“High inflation is a serious threat to the achievement of maximum jobs and to the achievement of a long expansion that can give us that.”

Businesses across the country have complained of struggling to fill vacancies, and record numbers of workers have left their jobs as the share of adults in the workforce has barely budged in recent months, even so. that wages have gone up.

Powell acknowledged that child care is a factor keeping the participation rate low, as the industry has also struggled to find workers.

– Reassured markets –

The central bank is juggling competing forces amid the global pandemic, with price spikes that have taken policymakers by surprise coupled with workers reluctant or unable to return to work.

Some senators and observers argue that the Fed has waited too long to fight inflation, and even the three rate hikes many predict the central bank will approve this year will not be enough.

The Fed’s easy monetary policies have been a boon to financial markets during the pandemic, but recent signals from the central bank that it will reverse them have scared investors, causing stock prices to fall at times, especially in the sector. of technology.

Powell’s measured testimony seemed to reassure traders, and Wall Street stocks ended Tuesday’s trading sharply higher.

“The markets see these comments as quite benign,” Shaun Osborn, analyst at Scotiabank, told AFP.

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