Powell Flags 'Unevenness' in Recovery, Backs Fed's Bond Buying Plans

© Reuters.

By Yasin Ebrahim

Investing.com - Federal Reserve Chairman Jerome Powell said Thursday the economy has avoided the worst case scenario, but he continued to back the current pace of the Fed's bond purchases, citing "unevenness" in the recovery.  

The Fed chief, appearing during a virtual IMF panel discussion on Thursday, didn't sway from the central bank's ongoing narrative that asset purchases will continue until substantial progress is made toward achieving the central bank's employment and inflation goals.

The better-than-expected March jobs report, released last week, caught Powell's attention, but he was quick downplay any meaningful recovery in the labor market as unemployment remains above pre-pandemic levels.  

"There is a brighter outlook for the U.S. economy from fiscal support and vaccines, but unevenness in the recovery is a serious issue," Powell said during the discussion. "We want to see a string of months like the March jobs report to see progress."  

Powell also reiterated the Fed's view that the widely expected boom in inflation from ongoing supply chain bottlenecks and the reopening of the economy would be temporary. 

"[T]here would be upward pressure on prices [from supply chain bottlenecks] that may be passed onto the consumer ... but we think that the effect would be temporary," Powell said. The rising costs that consumers will likely have to bear will "not be repeated as the supply chain will adopt and become more efficient," he added.  

The Fed, however, would be prepared to raise interest rates if inflation were to unexpectedly move materially and persistently above its 2% target, but the central bank doesn't think that is the most likely outcome.          

The Fed chief's dovish comments echoed the tone of the Fed's March monetary policy meeting minutes released Wednesday. Fed policymakers acknowledged progress on the economy, but continued to back the ongoing pace of monetary support, saying substantial progress on the recovery will likely take "some time."