Federal Reserve Chairman Jerome Powell said he was committed to keeping interest rates low for the foreseeable future, even when he expressed hope for a strong economic recovery.
“When the time comes to raise interest rates, we will certainly do that, and this time, by the way, it will not be early,” said the head of the central bank on Thursday during a question and answer session presented by the University of Princeton.
During the wide-ranging discussion, Powell spoke about how the Fed handled the challenges posed by the Covid-19 pandemic, as well as its expectations for what is to come.
In its most recent policy statement, issued in December, the Federal Open Market Committee said it will maintain an accommodative stance until it sees “substantial progress” towards its employment and inflation targets.
Regarding the employment mandate, Powell emphasized the Fed’s new approach to inflation, in which it will not raise rates, even if unemployment falls below levels that historically would have been considered a warning sign for price pressures ahead.
“That would not be a reason to raise interest rates unless we start to see inflation or other imbalances that would threaten the fulfillment of our mandate,” he said.
One of these imbalances would be inflation. In recent days, some Fed officials have warned that inflation may rise earlier than the central bank expects and may force the removal of some policy accommodations earlier than committee members predicted.
The Fed’s benchmark short-term loan rate is anchored close to zero and continues to buy at least $ 120 billion in bonds each month. Core inflation hovers around 1.4%, well below the Fed’s 2% target.
“If inflation rises in undesirable ways, we have the tools for that and we are going to use them,” he said. “No one should doubt that.”
Powell noted that while the economy faces major challenges and there is a long way to go before the labor market recovers, there are reasons for optimism.
“We were in a good place in February 2020 and we think we can go back there, I would say, much earlier than we feared,” he said.
Powell spoke on the same day that the Department of Labor reported the biggest increase in claims for unemployment insurance since August.
This release came a week after the department reported that non-farm payrolls fell in December for the first time since April amid a drop in the leisure and hospitality industry due to Covid-related restrictions.
Despite these challenges, Powell said the economy faces a bright future, in part because of the lack of contagion that happened during the financial crisis in 2008. There was some concern expressed about the continued increase in corporate debt, as well as stretched valuations of the securities market. actions. but the Fed chairman said he is not concerned about these issues.
“All economies, and certainly our economy, face many long-term challenges,” he said. “But I would say that there were no obvious imbalances that threatened the ongoing expansion. You really can’t identify something that looked like it would explode, the expansion.”