by 5 minutes Read (Powell’s prepared testimony is included) Reuters, WASHINGTON, July 14 – Federal Reserve Chair Jerome Powell said on Wednesday that the United States’ monetary policy will provide “strong support” to the economy “until the recovery is complete,” downplaying a recent spike in inflation and emphasizing the need of ongoing job growth. Any move to reduce assistance for the economy by lowering the Federal Reserve’s $120 billion in monthly bond purchases is “still a ways off,” Powell said in remarks prepared for delivery to the Financial Services Committee of the US House of Representatives at 12 p.m. EDT (1600 GMT). Despite recent employment gains, Powell said “there is still a long way to go” in bringing millions of people back to work, many of whom are lower-wage Black or Hispanic employees who were struck hardest by the recession precipitated by the coronavirus pandemic. Concerns about inflation creating new threats were addressed by Powell, who stated that price hikes “would likely stay elevated in coming months before decreasing,” implying that he saw no need to accelerate the transition to post-pandemic policies. He stated that long-term inflation expectations remained consistent with the Fed’s 2% inflation target. Even while prices of industrial inputs grew at a faster-than-expected rate following the release of Powell’s prepared speech, Treasury rates declined, indicating markets interpreted his words as leaving the monetary taps open. The statements were also notable for omitting any reference of the Delta version of the coronavirus as a threat to the economy, with Powell stating that the Fed expects solid job increases in the near future “as public health conditions improve.” During two days of testimony before Congress, Powell is expected to be grilled on this topic, as well as the Fed’s prognosis on inflation, the labor market, and the economy’s recovery. Powell will testify before the Senate Banking Committee on Thursday at 9:30 a.m. Faster-than-expected inflation and a new surge in coronavirus illnesses due to the Delta strain might put Powell in a bind, driving policy expectations in opposite directions. At the Fed’s June meeting, officials took the first steps toward post-pandemic policy, with some officials planning to tighten financial conditions sooner rather than later to keep inflation under control. If fresh coronavirus-related dangers arise, the Fed may be pushed to the contrary, leaving support for the recovery in place longer in case consumer and corporate expenditure falls as a result of an increase in new illnesses. Investors are concerned about sluggish U.S. economic growth, as evidenced by falling Treasury bond yields, despite new price data released this week showing customers paying significantly more for a variety of products and services, including appliances, fabric, beef, and rent. The Federal Reserve noted in a report to Congress last week that when the “exceptional conditions” of the reopening fade away, “supply and demand should become better balanced, and inflation is largely projected to decline.” While the Fed’s primary narrative of a job market that still requires substantial aid from the central bank to restore it to pre-pandemic health and minimize the long-term harm from a historic, virus-driven tragedy is becoming more difficult to hold, Powell is sticking to it for the time being. The Federal Reserve has stated that it would not reduce its bond-buying program unless it sees “significant further progress” in restoring the approximately 7.5 million jobs that have been lost since the outbreak began in March 2020, a goal that policymakers believe will be reached later this year. That, however, is contingent on the economy’s continuous reopening, recovery in the tourism, leisure, and other “social” businesses ravaged by the health crisis, and the desire of the currently unemployed or homebound to fill the record number of job openings. New daily coronavirus infections were decreasing toward recent lows when Powell last spoke about the economy at a news briefing after the end of the June 15-16 policy meeting, and the Fed omitted language from its policy statement that the epidemic “continues to impact on the economy.” Since then, the Delta variant has increased the seven-day moving average of cases from 11,000 to more over 21,000, raising concerns about the variant’s spread in areas where vaccination rates are low. Globally, the numbers are more gloomy. If this trend continues, Evercore ISI Vice Chairman Krishna Guha believes the Fed will be saddled with “sickflation,” in which people stay out of the labor market in greater numbers than expected due to the virus’s resurgence, but supply chain problems, rising wages for those who do have jobs, and other issues keep inflation high. “We expect Powell to take a cautious tone,” he added, “reiterating that the Fed expects solid growth but emphasizing that the epidemic continues to drive the economy.” Howard Schneider contributed reporting, while Dan Burns, Andrea Ricci, and Paul Simao edited the piece./n
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