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Time for Fed to taper bond purchases but not to raise rates, Powell says

EconomyOct 22, 2021 02:45PM ET
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© Reuters. FILE PHOTO: Federal Reserve Chair Jerome Powell attends the House Financial Services Committee hearing on Capitol Hill in Washington, U.S., September 30, 2021. Al Drago/Pool via REUTERS

By Lindsay (NYSE:LNN) Dunsmuir and Ann Saphir

(Reuters) -Federal Reserve Chair Jerome Powell on Friday said the U.S. central bank should start the process of reducing its support of the economy by cutting back on its asset purchases, but should not yet touch the interest rate dial.

"I do think it's time to taper; I don't think it's time to raise rates," Powell said in a virtual appearance before a conference, noting that there are still five million fewer U.S. jobs now than there were before the coronavirus pandemic. He also reiterated his view that high inflation will likely abate next year as pressures from the pandemic fade.

"We think we can be patient and allow the labor market to heal," he said.

The Fed has promised to keep its benchmark overnight interest rate at the current near-zero level until the economy has returned to full employment and inflation has reached the central bank's 2% goal and is on track to stay moderately above that level for some time.

It's "very possible" the Fed's full employment goal could be met next year, Powell said on Friday, if supply-chain constraints ease as expected and the service sector opens more fully, allowing job growth to speed back up. Job gains slowed sharply in August and September as COVID-19 cases surged.

Still, it's not a certainty, and if inflation - already higher and lasting longer than initially expected - moves persistently upward, the Fed would "certainly" act, he said.

"Our policy is well positioned to manage a range of plausible outcomes," Powell added. "We need to watch, and watch carefully, and see if the economy is evolving consistent with our expectations, and adapt policy accordingly."

The remarks appeared to open the door to a possibility the Fed dreads: needing to raise interest rates to prevent inflation from spiraling out of control and, by doing so, cutting short the jobs recovery.

Powell said he doesn't see that as the current situation, but he does see a growing tension between the Fed's two mandates of full employment and stable prices.

"The risks are clearly now to longer and more persistent bottlenecks and, thus, to higher inflation," he said. For now, the Fed needs to "look through" that high inflation, despite the pain it means for households having to pay more for gas and food, in order to give time for the economy to work out supply kinks.

HIGHER RATES COMING

The Fed has signaled it will likely begin next month to taper its $120 billion in monthly purchases of Treasury bonds and mortgage-backed securities.

About half of Fed policymakers believe a rate hike will need to follow in 2022, with a few suggesting it may have to come by the summer. The other half of U.S. rate-setters see rate hikes as not appropriate until 2023, and one of them - Minneapolis Fed President Neel Kashkari - is holding out for 2024.

But recent data appears to be falling in line with the views of those pushing for earlier hikes in borrowing costs.

Consumer prices have been rising at more than twice the Fed's target.

And, Powell noted, "supply constraints and elevated inflation are likely to last longer than previously expected and well into next year, and the same is true for pressure on wages."

Still, he said, the most likely case is for inflation pressures to abate and job growth to resume its pace from this past summer.

For now, the Fed will watch and wait, Powell said.

Time for Fed to taper bond purchases but not to raise rates, Powell says
 

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Comments (33)
Jeremy Sklenar
Jeremy Sklenar Oct 24, 2021 6:18AM ET
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Powell has ran the train off the tracks.. He's a pawn on the top 1% chess board.
Ronald Warren
Ronald Warren Oct 23, 2021 12:54PM ET
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There has to be a significant taper. Inflation is screaming! A couple weeks ago, the federal government increased food stamp benefits by 27%. Inflation is real! The government is acting on it!!
Chow Der
Chow Der Oct 23, 2021 10:29AM ET
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The money went to NYSE and Nasdaq!
Fadli Pratama
Fadli Pratama Oct 23, 2021 9:41AM ET
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with no budgeting for war in afganistan... america will rise again... ready for china
Steffen vdm
Steffen vdm Oct 23, 2021 12:48AM ET
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He should be playing bingo with Joe in a retirement home. That would be the best for all of us
Mike Johnson
Mike Johnson Oct 22, 2021 5:40PM ET
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let the market crash
Mike Johnson
Mike Johnson Oct 22, 2021 5:38PM ET
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J Powell and Joe biden destroying America
Jack Zhang
Jack_A Oct 22, 2021 5:38PM ET
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plus Trump!!!
Gerard Banon
Gerard Banon Oct 22, 2021 3:49PM ET
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He should be fired
MK MK
MK MK Oct 22, 2021 3:49PM ET
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Jailed with Lagarde. They would be lucky if just fired
Ricardo Diogo
Rcd72 Oct 22, 2021 3:22PM ET
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worst than Madoff. 120B X 16 months wasted. 15%!!! of total US debtwasted!!!
Aleksandr Radchenko
Aleksandr Radchenko Oct 22, 2021 2:41PM ET
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if you think pumping up the markets was in vain, what do you want? Do you want hundreds of thousands of hungry people to take to the streets and start stealing from everyone? would you prefer that the unemployed riot your streets? are you really that stupid? or are you pretending? just sell all your shares now. market indices should decline to pre-pandemic levels. take the profit and we will start all over again.
Ricardo Diogo
Rcd72 Oct 22, 2021 2:41PM ET
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wake up!money went to increase! not just holding real estate.money went to speculate or do you think is normal ATH on ALL materials during a pandemic?
Ricardo Diogo
Rcd72 Oct 22, 2021 2:41PM ET
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it was just a waste of money , and was worst than doing nothing.it is distorting worldwide
Michel BOVY
Michel BOVY Oct 22, 2021 2:41PM ET
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CRO...KS   just ALL  Cro...ks at the Head  of  CENTRAL BANKS   they should ALL  enjoy  Madoff   free  room   NOW   !!!
Jack Zhang
Jack_A Oct 22, 2021 2:41PM ET
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brother, you are on the point. sadly, this is how US system works: printing money!
Jan Novy
Jan Novy Oct 22, 2021 2:38PM ET
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Powell is criminal
jj mm
jj mm Oct 22, 2021 2:37PM ET
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Powell and his bandits traders....
William Bailey
William Bailey Oct 22, 2021 2:02PM ET
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Tapering because out of debt buyers!! World tightening! They are changing Fed rules for stock purchases because Fed already robbed the treasury to bone dry!!!
bret lafrance
bret lafrance Oct 22, 2021 1:51PM ET
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lol - saw that coming, where do you think that they will hide their money now?
Invest Right
Invest Right Oct 22, 2021 1:41PM ET
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We sold our stocks and now we can't own any due to our rules. NOW, we can taper in earnest!
Umer Faruq
Umer Faruq Oct 22, 2021 1:01PM ET
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Powell and his buddies should be in jail by now....  I would be shocked if he gets re-elected....  He has single handidly killed the middle class, and is the biggest threat to our economy.
Sabi Sab
SabiSab Oct 22, 2021 1:01PM ET
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Well, if you want to jail Uncle Powell, you have to jail Auntie Pelosi too!
Mart Bab
Rubberduck1973 Oct 22, 2021 12:52PM ET
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Omg. I assume you all know the USA government dept went trough the roof? And assume you all know raising rates is going to be subside for the USA. So once again, the fed is not. I repeat. The fed is not going to race rates. Inflation is needed to evaporate USA government dept. So the only thing the fed will do is stop printing. There is no other outcome. Start trading accordingly. This means, sell stock, buy gold. Period.
peter neal
peter neal Oct 22, 2021 12:44PM ET
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He is a liar and had no credibility and should be arrested. Paying off the debt with hyperinflation and destroying people's savings. He should be forced out.
Vincenzo Tilotta
Vincenzo Tilotta Oct 22, 2021 12:38PM ET
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What tools? You have no tools, you are still bluffing, and people are starting to slowly wake up now. Next interest rate is pencilled in for 2029, that is the truth, because u know that u cannot hike, the market is too fragile, and u know that, that is why u have not moved yet
Val Lange
Val Lange Oct 22, 2021 12:36PM ET
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Market is ready for tapering, only rasing the rates will change the mood.
Matt Brackley
Matt Brackley Oct 22, 2021 12:31PM ET
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lol well what effect will that have on rates?
Zsombor Komán Birtalan
Zsombor Komán Birtalan Oct 22, 2021 12:25PM ET
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And how is your investment doing Mr. Powell?
Michael Robertson
Michael Robertson Oct 22, 2021 12:25PM ET
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You mean his insider trading?
Roger Miller
Roger Miller Oct 22, 2021 12:16PM ET
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For a while now everyone else has been saying that the inflation was not transitory, except for Powell and his cohorts.  This makes them either not as smart as people like to believe, or dishonest.
Roman Sheveloff
Roman Sheveloff Oct 22, 2021 12:16PM ET
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Dishonest
Tyrone Jackson
Tyrone Jackson Oct 22, 2021 12:15PM ET
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Exact opposite of what he said 2 months ago. If you believe him or any banker/ politician, then you are gullible. Been trading the inflation hedge since 2017 , You can’t borrow and print money and not have inflation. And it’s not transitioning it’s for years to come.
Vincenzo Tilotta
Vincenzo Tilotta Oct 22, 2021 12:15PM ET
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Exactly, me too i have been piling on onto my inflation trade since 2018. You can tell that the rest of the market was asleep for ages, and now over the last few weeks they are beginning to slowly wake up, about time. First rate hike will not happen until 2029, hyperinflation galore baby
Tyrone Jackson
Tyrone Jackson Oct 22, 2021 12:15PM ET
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Now the average Joe is talking about inflation- You know it’s hitting/ hurting them
peter neal
peter neal Oct 22, 2021 11:57AM ET
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hyperinflation is here to stay.
 
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