Jerome Powell, Chairman of the Federal Reserve, reaffirmed his commitment to keep interest rates low for the foreseeable future, even though he expressed hopes for a strong economic recovery.
“When it comes time to raise interest rates, we certainly will, and that time isn’t fast enough anyway,” the central bank chief said during a question and answer session at Princeton University on Thursday.
During the extensive discussion, Powell spoke about how the Fed dealt with the challenges of the Covid-19 pandemic and about its expectations for what was to come.
In its most recent policy statement, issued in December, the policy-making Federal Open Market Committee said it would maintain an accommodative stance until it sees “substantial further progress” toward employment and inflation targets.
On the employment mandate, Powell emphasized the Fed’s new approach to inflation, where it will not raise rates even if unemployment falls below levels historically seen as a warning of future price pressures.
“That would not be a reason to raise interest rates unless we start to see inflation or other imbalances that threaten the fulfillment of our mandate,” he said.
One such imbalance would be inflation. In recent days, some Fed officials have warned that inflation could rise faster than the Fed expects and that inflation could potentially push back sooner than commissioners forecast.
The Fed’s short-term benchmark rate is anchored near zero and continues to buy at least $ 120 billion worth of bonds every month. Core inflation is around 1.4%, well below the Fed’s 2% target.
“If inflation is rising in a way that is not welcome, then we have the tools for it and we will use it,” he said. “Nobody should doubt that.”
Powell noted that while the economy faces major challenges and there is still a long way to go before the job market heals, there is cause for optimism.
“We were in a good place in February 2020, and we think we can get there, I would say, much sooner than we feared,” he said.
Powell spoke the same day that the labor department reported the fastest rise in jobless claims since August.
That release itself came a week after the department reported that nonfarm payroll declined in December for the first time since April due to a crush on the leisure and hospitality industries due to Covid-related restrictions.
Despite these challenges, Powell said the economy has a bright future, in part due to the lack of contagion during the 2008 financial crisis. Some concerns have been raised about the continued rise in corporate debt and stretched stock market valuations. but the Fed chairman said he is not concerned about those issues.
“Any economy, and certainly our economy, faces many longer-term challenges,” he said. “But I would say there were no obvious imbalances threatening the continued expansion. You really can’t identify something that looked like this was going to explode, the expansion.”