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Powell says economy still needs Fed support, pushes back on inflation worries

EconomyFeb 23, 2021 03:02PM ET
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2/2 © Reuters. FILE PHOTO: Chairman of the Federal Reserve Jerome Powell listens during a Senate Banking Committee hearing in Washington 2/2

By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) - Federal Reserve Chair Jerome Powell, pushing back on suggestions that loose monetary policy risked unleashing inflation and financial risks in what may be an emerging economic boom, said the central bank would keep its attention focused on getting Americans back to work as a vaccine-related recovery proceeds.

"Monetary policy is accommodative and it continues to need to be accommodative ... Expect us to move carefully, patiently, and with a lot of advance warning," before any changes, Powell said in response to questions from Republican lawmakers about whether a faster-than-expected recovery still required crisis-level assistance.

Powell, who was testifying before the U.S. Senate Banking Committee, acknowledged the potentially fast growth to come as the coronavirus crisis eases and vaccinations expand. Coming updates to the Fed's outlook may show the economy expanding "in the range" of 6% this year, he said, and overall output conceivably returning in the next few weeks to the pre-pandemic level.

Such a rebound would have been unthinkable even a few weeks ago, but the rollout of COVID-19 vaccines coupled with federal fiscal support that has bolstered household income has boosted the economic outlook for the year.

When asked what his message was to financial markets, Powell did not talk about the risks of rising bond yields or a possible spike in inflation, but of the roughly 10 million jobs still missing compared to a year ago, and the need for the U.S. central bank's policy to stay wide open until that is fixed.

Interest rates will remain low and the Fed's $120 billion in monthly 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.

There was little market reaction to Powell's remarks, though a recent sharp rise in Treasury bond yields, linked partly to concerns that inflation might surge and the Fed might tighten monetary policy sooner than expected, was largely curbed.

"Powell presumably wants to try to persuade markets that a strengthening economy does not necessarily mean that rates have to rise. Good luck with that when the post-COVID surge in activity becomes clear," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

'WARNING SIGNS'

Some Republican senators expressed concerns 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, referring to the recent run-up and crash of video-game retailer GameStop Corp (NYSE:GME)'s stock and sharp moves in the value of the Bitcoin cryptocurrency.

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

The Fed's interest rate cuts and monthly bond purchases "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 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 U.S. House of Representatives Financial Services Committee on Wednesday as part of his mandated twice-a-year appearances on Capitol Hill to provide an update on the economy.

Powell says economy still needs Fed support, pushes back on inflation worries
 

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Comments (38)
Oliver Brecht
Oliver Brecht Feb 24, 2021 7:25AM ET
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denial is definitely the strongest human feeling...
Bernard Tan
Bernard Tan Feb 23, 2021 10:18PM ET
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How can Biden have his grand vision of a successful economy by using Trump’s appointed Fed Reserve Chair? He can’t !!
Eudon Hickey
Eudon Hickey Feb 23, 2021 10:18PM ET
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Bone head! Money does not have a political side. Besides, Biden only have sniffing on his mind
Bernard Tan
Bernard Tan Feb 23, 2021 10:09PM ET
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Replace Jerome Powell with Biden’s appointed Fed Chair!
David Yokoi
David Yokoi Feb 23, 2021 4:36PM ET
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MMT is still trying to prove itself. Let’s see what it looks like in 10 years.
Man Up
Man Up Feb 23, 2021 3:31PM ET
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covid and technology restructured corporates and business and many of those changes are permanent (shifting offline to online). job market will never be the same and thus people do actually need financial supports, educations to make living
Andrew Allen
Andrew Allen Feb 23, 2021 3:31PM ET
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education ain't worth a dam thing. ask anyone who spent thousands on their degree. "Education" degrees aren't worth the paper they're printed on, dummy
Silver Bull
Silver Bull Feb 23, 2021 3:24PM ET
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Economy needs free market support. We need these financial insiders OUT of our economy. End the fed and open the economy back up.
Chris Kellerman
Chris Kellerman Feb 23, 2021 3:17PM ET
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Stop the stimulus. You’re creating a currency worth nothing in the end
Manish Manish
Manish Manish Feb 23, 2021 3:17PM ET
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u US citizens getting anything from these type of stimulus. here in India I feel like stimulus in India helps only big business and corporates
Chris Kellerman
Chris Kellerman Feb 23, 2021 3:16PM ET
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The Fed can’t save the market. This will end very badly
Manish Manish
Manish Manish Feb 23, 2021 3:16PM ET
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fed in US, rbi in India etc all central banks r puppet of ministers who ultimately r puppets of top businesses
Bernard Tan
Bernard Tan Feb 23, 2021 3:16PM ET
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Why is Powell not replace yet with Biden’s selection of Fed Reserve Chair???
Robert Cencarik
Robert Cencarik Feb 23, 2021 3:07PM ET
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Don't think very highly of this guy....
Steve Lora
Steve Lora Feb 23, 2021 1:18PM ET
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Biden has collapsed in 30 days. I thought it would be a yr.
David David
David9 Feb 23, 2021 1:18PM ET
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Show us the proof... if not you are just a he said she said...
Alan Rice
Alan Rice Feb 23, 2021 1:17PM ET
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Earth of humans: 20,000 "oil towns" ?? Our choice.
peter neal
peter neal Feb 23, 2021 1:08PM ET
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The 10 million unemployed want to stay unemployed it pays better. There are plenty of jobs but people don't want to work because of 35k a year unemployment.
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Fabio falec
falec Feb 23, 2021 1:08PM ET
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Agree with you Chris. This bloke has likely a job where he can work fom home (like me). But he claims that the others shall go out and risk their lifes, when numbers speak very well. At least I well understand the situation and related concerns
Mark Jannetty
Mark Jannetty Feb 23, 2021 1:08PM ET
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Amit Patel maybe cut off the free money and they will get a job. farmers that dont plant seeds, don't get crops
Connecticut Yankee
A_Jaundiced_Eye Feb 23, 2021 1:08PM ET
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Christian Lewis  "Fix the virus and that will solve all problems."  Absolutely true. Buuuut...in the meantime, why not spend trillion$$ to pay back all the people who voted for you?  That seems fair.  Mo' money, mo' money, mo' money.
Mark Jannetty
Mark Jannetty Feb 23, 2021 1:08PM ET
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average life expectancy in America is 78. average age of death from Corona virus is 78. millions of people have been working right through this. this has been nothing but a political weapon of the left
Roland Hara
Roland Hara Feb 23, 2021 1:08PM ET
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Christian Lewis a raging virus outside? For the love of god, have you not read fhe CDC statistics? 98% of ppl that die from Covid have 2 or more underlying conditions, 2 or more! Sounds to me like those folks are just at likely to die from the Flu as they are COVID, No? Are you not terrified of the raging flu!? Vaccine or not, covid is here to stay.
Lisa Watkins
Lisa Watkins Feb 23, 2021 12:52PM ET
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This is such utter **** Open the economy back up and you'll see it rebound. The Federal govt is purposely dragging the country down.
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Amit Patel
Amit Patel Feb 23, 2021 12:52PM ET
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Nope, money over everything. Half a million Americans can tell you that. Nevermind, they can't.
Lisa Watkins
Lisa Watkins Feb 23, 2021 12:52PM ET
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David David .... the virus isn't the problem. it's the government.
Silver Bull
Silver Bull Feb 23, 2021 12:52PM ET
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David David If you think the virus is a problem you need to be executed
Roland Hara
Roland Hara Feb 23, 2021 12:52PM ET
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Silver Bull his been repping for China for ever on these boards. Not sure why he’s saying “we” now..
Karl Kessler
Karl Kessler Feb 23, 2021 12:52PM ET
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Silver Bull  That's a deeply unamerican comment. We don't execute people for their beliefs, right or wrong.
Gold Fever
Gold Fever Feb 23, 2021 12:25PM ET
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How long will the “full employment” charade last?
taylor jason
taylor jason Feb 23, 2021 12:25PM ET
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until we fill 10 million jobs
Nysom Nysom
Nysom Nysom Feb 23, 2021 11:28AM ET
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500,000 / 360 million
gautam baid
gautam baid Feb 23, 2021 11:28AM ET
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so u wanna say that coz only 0.13 percent of population died of covid its ok i am sure u wouldnt say that if someone of your family died or i am sure no one from your family would say if u died.
John Healy
John Healy Feb 23, 2021 11:28AM ET
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Try counting to 500,000.
Julie Cruise
Julie Cruise Feb 23, 2021 11:28AM ET
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how many of them had cancer or other serious illness?
Silver Bull
Silver Bull Feb 23, 2021 11:28AM ET
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12%/52%
Nysom Nysom
Nysom Nysom Feb 23, 2021 11:26AM ET
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Google 360 million / 500,000 the answer will surprise you
Nysom Nysom
Nysom Nysom Feb 23, 2021 11:26AM ET
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I apologize I did that backwards boy I guess I have troubles with math 500,000 / 360 million
Silver Bull
Silver Bull Feb 23, 2021 11:26AM ET
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google dancing israelis, the answer will surprise you
Jon Bal
Jon Bal Feb 23, 2021 11:04AM ET
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the black swan will be china and japan dumping their treasuries cause they dont wanna get paid back in toilet paper
Silver Bull
Silver Bull Feb 23, 2021 11:04AM ET
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yuan and yen are just as good as TP also
Ted Byrley
ByerlyCastle Feb 23, 2021 10:55AM ET
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Since the monitor did not like my comments for some reason. Remember that price expectations can change rapidly. The book The Turning Points points out how things can change.  Monetary Policy can have the reverse effect than what is expected. Rising stimulus, if overdone can cause price expectations to rise. I have not recently looked at the announcement dates and what actually happened.  But I seem to remember something about this.
Hedge Fund
Hedge Fund Feb 23, 2021 10:51AM ET
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I've been on here years..never do I push anything but BUY LITCOIN NOW FEB 23RD 2020..thank me after April..screenshot this..
joe balone
joe balone Feb 23, 2021 10:51AM ET
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2020 is long gone , was definitely a good buy then.
Clinton Powell
Clinton Powell Feb 23, 2021 10:51AM ET
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What is Litcoin?Im going to assume thats a typo, right?
Karl Kessler
Karl Kessler Feb 23, 2021 10:51AM ET
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Clinton Powell  Litcoing - you get more rewards the more you read, LOL!
Karl Kessler
Karl Kessler Feb 23, 2021 10:51AM ET
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Minus the g. Ugh!!!!
Rick Young
Rick Young Feb 23, 2021 10:49AM ET
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More thsn a full year’s GDP in “aid” to fill a much smaller gap - yup, inflation is coming.
Wei jie Lai
Wei jie Lai Feb 23, 2021 10:43AM ET
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government is doing what they can to support the economy and y’all complaining and look for a market melt down to benefit your own.. degenerates
Adrian Martinez
Adrian Martinez Feb 23, 2021 10:43AM ET
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The economy is not the stock market. I'm sure you've heard this before. The stock market is being artificially propped up. In no way is that good for long term.
Ben Bigs
Ben Bigs Feb 23, 2021 10:43AM ET
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The government is the only reason we're in this mess.
Fabio falec
falec Feb 23, 2021 10:43AM ET
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We know that but we still stay invested. Do you see safer to stay out of the markets (in the long run), while governments are printing like no tomorrow?
Mario Hispanicus
Mario Hispanicus Feb 23, 2021 10:41AM ET
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the central banks always win.
Silver Bull
Silver Bull Feb 23, 2021 10:41AM ET
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they're like the mob, pure evil and never go away.
Tien Hung Van
Tien Hung Van Feb 23, 2021 10:37AM ET
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beat around the bushes again
Ishtiaq Bokhari
Ishtiaq Bokhari Feb 23, 2021 10:37AM ET
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Hindi style the market was converted to the directions where is the time you why do
Owais Rana
Owais Rana Feb 23, 2021 10:37AM ET
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whats your mean ?
Ted Byrley
ByerlyCastle Feb 23, 2021 10:35AM ET
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I am just stupid economist, and even my friend shot me at this point. But, the risk the government both fiscal and monetary policy is that internationally the good-faith premium that we have had could go away. What can happen is extreme monetary and fiscal policy causes price expectations to rise and therefore interest rates to rise more rapidly. If that happens, say goodbye to the stock market, the bond market, and real estate prices. Also keep in mind historically, monetary policy takes one or two years to work its way into price expectations and interest rates. Maybe this time is different, I don't know. I do know the things are out of control.
Muhammad Shah
Muhammad Shah Feb 23, 2021 10:35AM ET
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For the new investors can anyone explain is this a good news or the bad news
Rodrigo Chavez
Rodrigo Chavez Feb 23, 2021 10:35AM ET
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you should work on your comprehension but it says the conditions underlying the market are to remain the same with the government propping up the market by buying bonds
Matt Novakovich
Matt Novakovich Feb 23, 2021 10:35AM ET
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it means short every dow Jones stock
 
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