Powell Focuses on Economic Need at Key Moment in Markets and Politics

“The economic recovery remains uneven and far from complete, and the path ahead is highly uncertain,” Mr. Powell said. “There is a long way to go.”

To bolster growth, the Fed plans to encourage lending and spending by holding interest rates near zero, where they have been since March, and by continuing to buy large quantities of bonds to keep money pumping through the financial system. Investors have grown concerned that the Fed might slow those bond purchases sooner rather than later if inflation begins to rise.

Those worried investors had driven down stocks for five consecutive days. On Tuesday, the SP 500 fell nearly 2 percent before snapping back after Mr. Powell’s remarks.

In the bond market, interest rates on longer-term government debt have been climbing, reaching their highest point in a year this week. Those rates are the basis for corporate borrowing and mortgages, and their rise contributed to the stock market’s jitters.

“We’re in one of these market mania moments in which there’s an intense focus on inflation,” and “he was very sanguine, very calm,” said Julia Coronado, founder of MacroPolicy Perspectives and a former Fed economist. “He kept turning attention back to the labor market.”

Mr. Powell reiterated that the Fed plans to keep buying bonds until it sees “substantial further progress” toward its twin goals of full employment and stable inflation. America can “expect us to move carefully, and patiently, and with a lot of advance warning” when it comes to slowing that support, Mr. Powell said.

Joblessness has come down sharply after surging last year, but the official unemployment rate remains nearly double its February 2020 level. Job losses have been more acute for members of minority groups and those with less education. Though spending has bounced back, activity in the service industry is still subdued.

Article source: https://www.nytimes.com/2021/02/23/business/economy/powell-focuses-on-economic-need-at-key-moment-in-markets-and-politics.html