Powell says economy still needs Fed support, markets not driven by loose money

By Howard Schneider WASHINGTON (Reuters) - Federal Reserve Chair Jerome Powell on Tuesday pushed back on suggestions that U.S.

Reuters February 24, 2021 00:06:29 IST
Powell says economy still needs Fed support, markets not driven by loose money

Powell says economy still needs Fed support markets not driven by loose money

By Howard Schneider

WASHINGTON (Reuters) - Federal Reserve Chair Jerome Powell on Tuesday pushed back on suggestions that U.S. central bank support for the economy risked inflating a dangerous asset bubble, insisting the support was still needed and that investors were responding mostly to expectations for a successful recovery.

From the anticipated success of coronavirus vaccines to the large stash of savings available for households to spend in coming months, "there are many factors that are contributing to what is happening in markets right now," Powell said in a hearing before the Senate Banking Committee. "Monetary policy I would certainly agree is one of them," but still needs to be deployed to support the economy until it is more fully healed.

Interest rates will remain low and the Fed's bond purchases will continue "at least at the current pace until we make substantial further progress towards our goals ... which we have not really been making," Powell said in the hearing, his first since Democrats won the White House and control of both chambers of Congress.

The Fed chief was responding to questions from Republican senators concerned that the combination of Fed asset purchases, a potential vaccine-driven economic boom, and passage of another massive stimulus package may drive asset prices to unsustainable levels and spark inflation.

"Be it GameStop, Bitcoin, real estate, commodities, we are seeing quite elevated asset prices and signs of inflation," said Republican Senator Pat Toomey, who is among those arguing that the Biden administration's proposed $1.9 trillion spending plan should be tailored.

"There are a lot of warning signs that are blinking yellow," Toomey said.

Powell, however, said the focus needed to remain on an economic recovery that is "uneven and far from complete," and would need the central bank's help for "some time" to get back to full employment.

The Fed's interest rate cuts and monthly purchases of $120 billion of government bonds "have materially eased financial conditions and are providing substantial support to the economy," Powell said in his opening remarks to the committee.

"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," the hurdle the Fed has set for discussing when it might be appropriate to pare back support.

Even with Americans being vaccinated at a rate of more than 1.5 million a day and coronavirus caseloads dropping, Powell and his fellow Fed policymakers are focused on the nearly 10 million jobs missing from the economy compared to a year ago, and the potent risks still posed by the virus, which has killed more than half a million people in the United States.

While the health crisis in the country is improving and "ongoing vaccinations offer hope for a return to more normal conditions later this year," Powell said, "the path of the economy continues to depend significantly on the course of the virus and the measures taken to control its spread."

Powell will testify before the House of Representatives Financial Services Committee on Wednesday as part of his mandated twice-a-year appearances on Capitol Hill to provide lawmakers with an update on the economy.

(Reporting by Howard Schneider; Editing by Paul Simao)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.