Fed’s Powell pledges low rates until inflation exceeds two per cent

Federal Reserve Chairman Jerome Powell repeated his assurance that the Fed will keep rates at the current level near zero until the economy reaches ‘maximum employment’. — Reuters pic
Federal Reserve Chairman Jerome Powell repeated his assurance that the Fed will keep rates at the current level near zero until the economy reaches ‘maximum employment’. — Reuters pic

Subscribe to our Telegram channel for the latest updates on news you need to know.


WASHINGTON, Feb 23 — Federal Reserve Chairman Jerome Powell today pledged that the US central bank will keep benchmark lending rates low until the economy is at full employment and inflation has risen consistently.

The assurance comes amid growing fears on markets that a quick recovery from the pandemic will lead to higher interest rates.

Powell insisted that the Fed will keep rates at the current level near zero until the economy reaches “maximum employment and inflation has risen to two per cent and is on track to moderately exceed two per cent for some time.”

However, he cautioned, “the economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.”

Likewise, the central bank will continue to buy bonds “at least at their current pace until substantial further progress has been made toward our goals,” he said in the first day of his semi-annual testimony before Congress.

With Congress moving towards approving President Joe Biden’s US$1.9 trillion (RM7.7 trillion) rescue plan, raising hopes for a rapid bounceback in economic activity, some economists have raised concerns about spiralling inflation.

The yield on 10-year Treasury bonds — a key red flag on inflation — has spiked, which in turn has hit stock prices amid concerns the Fed will have to raise interest rates more quickly than expected. That would hinder the ability of companies to borrow in an economy already awash in debt.

Powell has previously downplayed those concerns, saying that while prices may spike temporarily after the pandemic shutdowns, the Fed has the tools to deal with the situation.

In more than a decade following the 2008 global financial crisis, inflation barely cracked the Fed’s two per cent target, even when unemployment reached a 50-year low of 3.5 per cent in early 2020.

That caused the central bank to rethink policy, and say that rather than raise the lending rate as unemployment falls to head off inflation, it will hold fire until inflation has actually breached the two per cent level for an extended period.

In testimony prepared for delivery to the Senate Banking Committee, Powell said it will take time for the recovery to reach that point, but Covid-19 vaccines offer hope for a speedy return to normal.

“The path of the economy continues to depend significantly on the course of the virus,” he said, but “ongoing progress in vaccinations should help speed the return to normal activities.”

Powell has repeatedly stressed the benefits of low joblessness to allow the benefits of the growing economy to reach African Americans and Hispanics who have been hardest hit by business closures caused by the pandemic. — AFP

Related Articles