The president of the Federal Reserve of the United States (Fed), Jerome Powell, said on Friday that the time was approaching for the central bank to start reducing its asset purchases, but it would be premature to raise interest rates.
He argued that employment is still low and inflation is expected to ease until next year as the pressures caused by Covid-19 diminish.
“I think it’s time to cut down on bond purchases; I don’t think it’s time to raise rates, “Powell said in a virtual conference call. “We believe that we can be patient and allow the job market to recover.”
This perspective, he emphasized, is the most likely scenario, adding that if inflation lasts longer than expected, the Fed would act.
“Our monetary policy is well positioned to manage a variety of feasible outcomes,” he remarked.
The Fed is about to begin to withdraw some of its support for the economy by reducing monthly purchases of Treasuries and mortgage-backed assets by $ 120 billion, a move that it has signaled could begin next month.
However, the central bank faces a delicate balancing act in its dual mandate of seeking full employment and price stability.
Consumer prices have risen to more than double the Fed’s 2% target, but employment is still well below its pre-pandemic level.
The most likely scenario is that inflationary pressures will subside and job growth will pick up its pace from last summer, the central banker said, but “if we saw a risk of inflation moving persistently up, we would certainly use our tools.” For now, he said, the Fed will watch and wait.
“Although the time is approaching to reduce our asset purchases, it would be premature to tighten policies using rates now, with the effect and intention of slowing employment growth, when there are good reasons to expect us to return to strong employment growth and so that supply restrictions decrease ”, he said.
Reference-www.eleconomista.com.mx