Federal Reserve Chairman Jerome Powell reaffirmed his commitment to keep interest rates low for the foreseeable future, even as he expressed hope for a strong economic recovery.
“When the time comes to raise interest rates, we will definitely do it, and the time is running out of time soon,” the central bank chief said during a Q & A session by Princeton University on Thursday. .
During the wide-ranging discussion, Powell spoke about how the Fed has handled the challenges of the Covid-19 pandemic, as well as its expectations for what lies ahead.
In its most recent policy statement, issued in December, the Federal Public Markets Committee said it would maintain an accommodating stance until it saw “significant further progress” towards its work and inflation targets.
On the employment mandate, Powell emphasized the Fed’s new approach to inflation in which it would not raise rates, even if unemployment fell below the levels that would historically have been a warning sign for the prices ahead.
“There will be no reason to raise interest rates unless we start to see inflation or other imbalances that could threaten the achievement of our mandate,” he said.
One such imbalance is inflation. Over the past few days, some Fed officials have warned that inflation could rise sooner than the central bank expects, and that the removal of policy accommodation may remove sooner than committee members predicted.
The Fed’s short-term lending rate is close to zero and it continues to buy at least $ 120 billion worth of bonds every month. Core inflation is around 1.4%, well below the Fed’s target of 2%.
“If inflation were to increase in an unwelcome way, we would have the tools and we would use it,” he said. “No one should doubt it.”
Powell noted that although the economy faces major challenges and there is still a long way to go until the labor market heals, there is reason for optimism.
“We were in a good place in February 2020 and we think we can get back there much sooner than we feared,” he said.
Powell spoke the same day that the Department of Labor reported the highest increase in unemployment claims since August.
The release itself comes the week after the department reported that non-farming payrolls fell in December for the first time since April amid pressure on the leisure and hospitality sector due to restrictions related to Covid.
Despite the challenges, Powell said the economy is facing a bright future in part due to the lack of leverage that occurred during the 2008 financial crisis. but the Fed chairman said he was not worried about these issues.
“Every economy, and certainly our economy, is facing many long-term challenges,” he said. “But I would say that there were no obvious imbalances that threatened the ongoing expansion. You really can not identify anything that looked like it was inflating, the expansion.”