Powell remains on loose course: USA is still "far away" from Fed targets

Powell remains on an easy course
USA is still "a long way off" from Fed targets

Despite a rise in interest rates, US Federal Reserve Chairman Powell urges patience in the crisis. It will not deviate from its loose monetary policy until the market comes closer to the Fed's goals. To achieve this, the central bank wants to use all instruments.

Another surge in US bond yields has brought US stock markets to their knees. US Federal Reserve Chairman Jerome Powell does not see the recent rise in interest rates as a reason to deviate from his current ultra-loose monetary policy stance. Even if labor market conditions improve, the Fed will not rush into anything: "I expect us to be patient," Powell said at an online job market event for the Wall Street Journal. Some investors had expected signals regarding the Fed's bond purchases in view of the rampant inflation worries on the stock markets.

S&P 500 3,766.49

In the bond markets, yields rose sharply in response to Powell's speech, and the dollar appreciated. Meanwhile, the downturn on the stock markets intensified. In his speech, Powell dampened inflation concerns and virtually ruled out a rate hike in the near future. With the upswing, an increase in prices is to be expected. But it will very likely remain with a one-off effect in the wake of a wave of consumption after the pandemic has subsided. He does not expect that inflation will solidify. But the Fed will not make the same mistake as it did in the 1960s and 1970s when it reacted too late to building inflationary pressures. High inflation is a very bad situation.

Probably not full employment in 2021

"The Fed will not let that happen again," said Powell. He reiterated that the Fed was "a long way off" from its goal of stable inflation at 2 percent. In addition, the goal of full employment is not expected this year. An interest rate hike should only be considered in an environment in which the economy has practically recovered from the Corona crisis. "Realistically, that will take a long time." The central bank will not raise interest rates in order to cool the economy down just because the number of employees is rising.

Powell had recently emphasized that the US economy would still be dependent on help from the monetary authorities for a long time in view of the virus crisis. The US Federal Reserve is currently helping the US economy with very low interest rates and monthly securities purchases worth $ 120 billion. Powell now reiterated that there is still a long way to go to achieve the Fed's goals.

At the end of February, speculation about rising inflation and an early exit by the central banks from their ultra-loose monetary policy triggered a sell-off on the bond market. The trend-setting ten-year US bonds recently returned 1.54 percent, a good half percentage point above the level at the beginning of the year.

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