Interest rates will be close to zero in the near future, Federal Reserve Chairman Jerome Powell said on Thursday.
Why it matters: This removes concerns that the central bank is looking to a setback in its easy money policy if the economy recovers faster than anticipated.
What is he saying: “When the time comes to raise interest rates, we will certainly do so. That time, by the way, is not short, “he said during an event with Princeton University.
Powell also said “now is not the time” to talk about any outflow of the $ 120 billion in bonds the Fed has been buying every month. Purchases flooded the liquidity stock market.
The big picture: Powell assessed the prospect of higher inflation – some investors are preparing for this – which would force the Fed to consider raising rates to counteract the price hike.
- “As the pandemic subsides and we potentially see a strong spike in spending, as people return to their normal lives and start consuming various services,” this can cause upward pressure on prices, Powell said.
- “But the real question is how big this effect is and whether it will be persistent,” said Powell, noting that it is unlikely to be persistent.
Stay up to date fast: The Fed launched a new policy framework last summer that sought to compensate for the fact that inflation for years did not reach its 2% target – but did not define details, such as how long it would like to see inflation above that level.
- “We don’t stick – and we don’t – to a specific mathematical formula when we intend to reach inflation moderately above 2% for some time,” said Powell.