AOC and other progressives urge Biden to dump Powell for a more climate-focused Fed chair

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Rep. Alexandria Ocasio-Cortez (D-NY) speaks during an event outside Union Station June 16, 2021 in Washington, DC. Ocasio-Cortez, joined by Rep. Seth Moulton (D-NY) and Sen. Kirsten Gillibrand (D-NY), called for increased federal funding for high-speed rail in the infrastructure package being discussed on Capitol Hill.

  • Progressives including Alexandria Ocasio-Cortez urged Pres. Biden on Tuesday to replace Jerome Powell as Fed Chair.
  • Powell made “positive changes,” but hasn’t done enough to combat climate change and racial inequity, they said.
  • Still, Powell holds broad support from lawmakers and will likely win a second term by February.
  • See more stories on Insider’s business page.

A group of progressive House Democrats is pressing President Joe Biden to oust Federal Reserve Chair Jerome Powell for a more climate-friendly, equality-focused central banker.

Reps. Alexandria Ocasio-Cortez, Rashida Tlaib, Ayanna Pressley, Mondaire Jones, and Chuy Garcia urged Biden to “reimagine a Federal Reserve focused on eliminating climate risk and advancing racial and economic justice” in a Tuesday statement. And while Powell helped the Fed make “positive changes” during his nearly four-year tenure, replacing him is key to a more effective central bank, the group added.

“To move forward with a whole of government approach that eliminates climate risk while making our financial system safer, we need a Chair who is committed to these objectives,” the lawmakers said.

The progressives also pushed back against Powell’s stance on bank regulation. The Fed chair “substantially weakened” several of the reforms born out of the financial crisis, even while millions of Americans are still rebounding from the Great Recession, the lawmakers said. Weakening the regulations made to avoid another 2008-like meltdown risks Americans’ livelihoods, they added.

Powell’s term is set to end in February, and the Biden administration is currently mulling whether to keep him in the position. Treasury Secretary Janet Yellen – a former Fed chair herself – has told White House advisers she wants to see Powell stay at the central bank. And Biden advisers are leaning toward recommending a second term for Powell, according to Bloomberg.

To be sure, none of the representatives who penned the statement have a vote on Powell’s potential 2022 confirmation. But a few Democratic senators have raised similar concerns with the Fed chair in recent weeks. Senate Banking Chair Sherrod Brown and Sen. Elizabeth Warren knocked Powell in July over his stance on bank regulation, arguing the chair should more rigorously watch over Wall Street. And Sen. Sheldon Whitehouse criticized Powell last week for his “middle ground” stance on climate change.

It’s not just lawmakers hitting back at Powell’s record. A collection of 22 economic, labor, and racial justice organizations wrote to Biden on Monday urging him to consider a Fed chair who better prioritizes climate change, full employment, and fighting systemic racism.

That’s not to say the Fed has been completely silent on the aforementioned issues. Central bank officials have increasingly looked into how the climate crisis endangers the financial sector and the broader economy. And the Fed’s latest framework – rolled out in August 2020 – seeks to create a more inclusive and equitable labor market, even if it involves letting inflation temporarily run hot.

For now, those calling for Powell’s replacement are likely in the minority. The Fed chair has largely enjoyed bipartisan support over his tenure, particularly for his actions during the COVID-19 recession. Powell oversaw the Fed’s March 2020 interest rate cuts and creation of emergency lending programs. His careful communication throughout the pandemic also helped stave off volatility in the financial markets.

Powell is still the most likely pick for Biden’s Fed appointment. But as the deadline for a decision nears, calls for a more progressive central banker are only getting louder.

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Mohamed El-Erian says the stock market won’t react to tapering speculation until the Fed’s ‘Big 3’ starts to take it more seriously

Federal Reserve Vice Chairman Richard Clarida, Federal Reserve Chairman Jerome Powell, and John Williams, Federal Reserve Bank of New York CEO John Williams (L-R)
Federal Reserve Vice Chairman Richard Clarida, Federal Reserve Chairman Jerome Powell, and John Williams, Federal Reserve Bank of New York CEO John Williams (L-R)

  • Economist Mohamed El-Erian said the market has not reacted to tapering speculation because the Federal Reserve’s “Big Three” hasn’t directly discussed it.
  • El-Erian was referring to Fed Chair Jerome Powell, Fed Vice Chair Richard Clarida, and Fed New York CEO John Williams.
  • “The market is still conditioned by the notion that the Fed … will not taper,” he told CNBC.
  • See more stories on Insider’s business page.

Despite speculation that the Federal Reserve may tighten its monetary policies sooner than expected amid a robust economic rebound in the past months, the market has not reacted simply because the “Big Three” hasn’t spoken, according to Mohamed El-Erian on Monday.

“This migration to ‘let’s get going’ is from below,” El-Erian told CNBC Monday, referring to various Fed officials who have weighed in on the central bank’s asset purchases. “So as long as the ‘Big Three’ aren’t saying it, the market is not going to be listening to anything else.”

El-Erian was referring to Fed Chair Jerome Powell, Fed Vice Chair Richard Clarida, and Fed New York CEO John Williams.

“The market is still conditioned by the notion that the Fed … will not taper,” he told CNBC. “Why? Because it has been so influenced by what happened in 2013 the taper tantrum, from what happened in the fourth quarter of 2018 when the Fed was forced into a very embarrassing U-turn.”

The 2013 taper tantrum was when collective panic prompted US Treasury yields to spike while the 2018 reversal was when the Fed signaled several rate hikes for that year then slashed them to none.

The Allianz and Gramercy advisor has for months been reiterating that he thinks the Fed should have tapered already given the inflationary setup.

Still, El-Erian thinks little to no direction will be offered during the high-profile annual Jackson Hole conference of central bankers from August 26 to 28. As for the Federal Open Market Committee meeting on September 22, he is a bit more hopeful.

“I think it’s really important for the chair to regain control of the narrative, otherwise he’s going to have a very split FOMC,” he said.

El-Erian, who is also the president of Queens’ College, Cambridge University, did add that once the Fed does taper assets, he thinks the market will not collapse.

“You will get some pullback, and you should, because we are at bubblish levels in certain places because of this massive liquidity, but I don’t think this is a collapsed situation,” he told CNBC. “This is a ‘let’s get more sober’ situation.”

El-Erian then discussed the two biggest risks he sees in the market right now: a big policy mistake for “not doing anything” or a market accident due to excess liquidity.

“If you look at really what the big risk to the economies are it is if they do not taper because then you increase tremendously … the high likelihood of this policy mistake or market accident,” he said.

The central bank slashed rates to historic lows at the start of the pandemic to stimulate economic activity and has signaled its intention of keeping interest rates unchanged until 2023.

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Rising wages are doing more good than bad, Fed’s Powell says

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  • Rising wages aren’t contributing to decade-high inflation, Fed Chair Jerome Powell said Wednesday.
  • Today’s trend is different and healthier than the wage-price spiral of the 1970s, he added.
  • The comments echo remarks from President Joe Biden, who’s repeatedly praised the jump in worker pay.
  • See more stories on Insider’s business page.

Wages are rising, but not to a degree that should concern economists, Federal Reserve Chair Jerome Powell said Wednesday.

The months-long labor shortage has prompted some businesses to raise wages as they scramble to rehire. Average hourly earnings rose at an unusually fast pace through spring, and healthy job creation in sectors with the largest pay bumps suggests the raises are working.

Yet the increases have raised some concerns around how higher pay might boost inflation. Price growth hit the fastest pace since April 2008 last month, reflecting dire supply shortages and overwhelming demand in the US economy. Higher pay could further accelerate inflation by lifting consumer spending and leading companies to charge more.

Such a process can occur, but it’s not what the economy is experiencing today, Powell said in a press conference following the Federal Open Market Committee’s July meeting. The US faced a wage-price spiral in the Great Inflation of the 1970s as companies used higher prices to offset rising labor costs. Since wages have steadily risen alongside broader price growth, the current trend is more healthy than concerning, the Fed chair said.

“Wages moving across the spectrum consistent with inflation and productivity is a good thing,” he added.

The FOMC elected to hold interest rates near zero and maintain asset purchases of at least $120 billion per month. Powell hinted that participants discussed plans to taper the purchases, but gave little indication of when action would take place.

To be sure, the jump in wages is easily outpaced by the inflation uptick. On net, average pay has declined due to broadly higher prices. Minimum wage workers who haven’t benefitted from the jump are the poorest they’ve been in decades.

Economists also expect the leap in wages to be a one-off. It’s unlikely businesses will factor higher inflation into their wage-setting plans for next year, Gregory Daco, chief US economist at Oxford Economics, said in June. The increase is more a “one-time releveling of low wages” than a permanent shift in workers’ bargaining power, he added.

That hasn’t stopped policymakers from cheering the gains so far. Labor Secretary Marty Walsh said earlier in July that the administration isn’t worried at all about higher pay adding to inflation.

“I think steady wage growth is good for workers. The one thing that we are not concerned about is … inflation,” Walsh told Insider. “We’re still in transition, so we’re not concerned about that. So I think anytime we can push for higher wages – and the president’s been very vocal on this – that’s a good thing for people.”

President Joe Biden made similar remarks in June, saying employers should simply “pay [workers] more!” if they were struggling with the labor shortage. The pay hikes are a result of employees having a stronger bargaining chip now, he added.

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Fed Chair Powell met Coinbase CEO Brian Armstrong and ‘Crypto Dad’ Chris Giancarlo at a time of heightened interest in digital coin trading

Federal Reserve Board Chairman Jerome Powell leaves after a Senate Banking Committee hearing on The Semiannual Monetary Policy Report to the Congress on Capitol Hill in Washington, U.S., February 12, 2020. REUTERS/Yuri Gripas
Federal Reserve Chairman, Jerome Powell.

  • Fed Chair Jerome Powell met Coinbase CEO Brian Armstrong on May 11, a calendar entry shows.
  • He also virtually met former CFTC chairman Chris Giancarlo, known as “Crypto Dad” for his early adoption of digital assets.
  • The Fed is exploring issuing a digital dollar, with a paper detailing its implications due this summer.
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Federal Reserve Chair Jerome Powell met Coinbase CEO Brian Armstrong on May 11 and crypto backer Christopher Giancarlo the next day, according to an entry in his monthly calendar.

Powell’s schedule showed his in-person meeting with Armstrong, which included former House Speaker Paul Ryan, lasted 30 minutes. The crypto market saw wild trading activity around that time, with bitcoin’s price reaching its highest volatility in a year in May.

Armstrong published a Twitter thread on May 15 about his meetings with politicians and agency heads, saying the “goal was to establish relationships and help answer questions about crypto.” He indicated assistance on providing more regulatory clarity on the space as part of the newly formed Crypto Council for Innovation led by Coinbase, Square, Fidelity Investments, and Paradigm.

@brian_armstrong/Twitter

Coinbase is the largest US crypto exchange with about 56 million registered users that processes $335 billion in trading volume per quarter. It became the first such exchange to go public in April, trading under the ticker symbol “COIN” on the Nasdaq.

A separate virtual meeting with Giancarlo, who was dubbed “Crypto Dad” while serving as chairman of the Commodity Futures Trading Commission, took place on May 12. His chairmanship overlapped with new markets for bitcoin futures, according to Bloomberg. That meeting, marked as a discussion on the “Digital Dollar Project,” also lasted 30 minutes.

Powell is overseeing the Fed’s exploration of a digital version of the dollar that would be controlled by the central bank. The Fed plans to publish a paper this summer that will lay out the risks and opportunities associated with issuing a central bank digital currency (CBDC).

“We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks,” Powell said in a statement in May.

Read More: How to mine doge: An 18-year-old TikTok influencer shares his process for earning crypto without directly buying via a $700 rig – and explains how it works for other altcoins including litecoin

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Americans can look forward to a ‘very strong’ labor market in 2022, Fed’s Powell says

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Markets want more clarity from Jerome Powell and the Fed

  • The labor market is on track for a healthy rebound in the coming months, Fed Chair Jerome Powell said.
  • One can expect “strong job creation” in the summer and heading into fall, he added.
  • The labor shortage is temporary, and there’s reason to believe worker supply can exceed expectations, Powell said.
  • See more stories on Insider’s business page.

The labor market is far from a complete recovery, but the country should see encouraging progress over the next several months, Federal Reserve Chair Jerome Powell said Wednesday.

Data tracking Americans’ return to work has been somewhat mixed throughout spring. On one hand, the economy is creating jobs at a steady pace. April and May both saw hundreds of thousands of payroll additions, although April was dismal in light of expectations of much bigger gains. Jobless claims are far lower than they were just months ago. And stronger wage growth suggests businesses are paying up to counter the labor shortage.

On the other, recent reports have fallen short of economists’ forecasts. Jobless claims unexpectedly ticked higher last week. And even at May’s more accelerated rate of payroll growth, it would take until July 2022 to fully recover all the jobs lost during the pandemic.

Despite the downside risks, Powell holds an unquestionably positive outlook for the labor market’s rebound. In a Wednesday press conference, the Fed chair said payroll growth should accelerate in the coming months as the pandemic fades further and more Americans rejoin the workforce.

“I think it’s clear, and I am confident, that we are on a path to a very strong labor market,” Powell said. “I would expect that we would see strong job creation building up over the summer and going into the fall.”

Projections from the Federal Open Market Committee support Powell’s sentiment. Policymakers expect the unemployment rate to slide to 4.5% by the end of 2021 from the May reading of 5.8%. The median forecast for 2022 unemployment was revised slightly lower to 3.8% from the March estimate of 3.9%. Officials then expect the rate to match its pre-pandemic low of 3.5% by the end of 2023.

Powell also downplayed concerns that a shortage of workers would permanently drag on the recovery. The previous economic expansion showed that labor supply can exceed expectations as the unemployment rate sits at historic lows, the Fed chair said. There’s no reason to think that dynamic won’t repeat itself, he added.

In the near term, Powell sees a handful of trends keeping Americans from returning to work. Childcare costs, COVID-19 fears, and enhanced unemployment benefits are likely dragging on labor-force participation, the central banker said, echoing comments from other Fed officials and lawmakers.

Another major hurdle could come from a simple skills mismatch, he added. Americans who could return to their previous jobs have largely done so already, Powell said. With those easy gains out of the way, a significant portion of payroll growth will have to come from Americans finding new work.

“This is a question of people finding a new job, and that’s just a process that takes longer. There may be something of a speed limit on it,” Powell said. “There’s just a lot that goes into the function of finding a job.”

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The Fed is watching housing ‘carefully’ and hopes builders catch up to the red-hot market, Chair Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The Fed is “carefully” watching the housing market as huge demand sends prices soaring, Chair Jerome Powell said.
  • The central bank doesn’t see “the kind of financial stability concerns” that fueled the 2008 crash, he added.
  • Powell said he hopes homebuilders react “and come up with more supply,” which would also boost job growth.
  • See more stories on Insider’s business page.

The housing market boom has caught the Federal Reserve’s attention.

By several measures, the US housing market is running at its hottest level since the mid-2000s bubble that nearly crashed the global financial system. Prices have surged at decade-high rates, and homebuying, while slowed from recent highs, remains elevated. What began as a pandemic-era rally has since raised concerns that soaring prices are eroding home affordability just as the US economy rebounds.

The market frenzy is being “carefully” monitored by the Fed, but there’s little reason to fear another nationwide crash, Fed Chair Jerome Powell said in a Wednesday press conference. The subprime lending and speculative purchasing that fueled the 2008 meltdown aren’t nearly as abundant this time around, making for a “very different housing market” than that seen a little over a decade ago, he added.

“I don’t see the kind of financial stability concerns that really do reside around the housing sector,” Powell said. “We don’t see bad loans and unsustainable prices and that kind of thing.”

Much of the boom is driven by demand significantly outstripping supply. Home inventory sits near record lows, and while housing starts recently leaped to the fastest rate since 2006, it will take some time for construction to equate to new supply.

Powell acknowledged the imbalance and highlighted that a bounceback in supply could also serve the labor market’s recovery.

“My hope would be that over time, housing builders can react to this demand and come up with more supply, and workers will come back to work in that industry,” he said.

Some of the current market strains can be tied directly to fallout from the 2008 crisis. The intense homebuying activity seen throughout the 2000s drove a boom in new construction. The rally lasted for years until dubious lending brought the market toppling down. Construction came to an almost-complete stop, and while it trended higher through the 2010s, it failed to retake levels seen during the prior decade’s surge. That building deficit is just now coming back to bite prospective homebuyers.

“We’ve been underbuilding for years,” Gay Cororaton, director of housing and commercial research for the National Association of Realtors (NAR), told Insider’s Hillary Hoffower.

While the Federal Reserve has little direct influence on the housing market, the central bank’s promise to hold interest rates near zero for the foreseeable future places downward pressure on mortgage rates. Lower borrowing costs help lower the barrier to entry for potential buyers, as would the previewed jump in supply.

Signs point to demand holding up even as supply recovers. Nearly 9% of Americans plan to buy a home in the next six months, according to The Conference Board’s latest consumer confidence report. That’s the largest share since 1987.

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American companies are struggling to hire workers, but BofA sees that fading by early 2022

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  • Many US businesses are facing worker shortages as the economy starts to reopen.
  • The unusual dynamic will fade by early 2022 as the labor market rebounds, BofA economists said.
  • Expanded unemployment benefits and COVID-19 fears are likely keeping many from seeking work, they added.
  • See more stories on Insider’s business page.

A McDonald’s paying people to interview for jobs. Uber drivers holding off on rides in hopes of higher pay. Millions of payrolls possibly vanishing altogether.

The US economy is still down roughly 8.4 million jobs since the pandemic first fueled massive layoffs. That suggests hiring would quickly bounce back as the country reopens and Americans get back to spending as usual. But the opposite effect is taking place. Instead of an oversupply of workers meeting weaker demand, businesses looking to hire are coming up against a shortage of Americans seeking employment.

That shortfall is presenting an unusual and unexpected challenge to the broader recovery. Without a return to pre-pandemic employment, consumer spending will trend below its potential and leave less money flowing through the economy.

Bank of America economists aren’t particularly concerned. The shortage is likely driven by expanded unemployment benefits included in the latest stimulus package, concern around catching the coronavirus, and home-schooling demands for working couples, the team led by Michelle Meyer said in a Friday note. The bank expects that dynamic to fade by early 2022 as stimulus expires and more Americans are vaccinated.

“Therefore by early next year, COVID-related labor shortages will likely be replaced by ‘traditional’ shortages because of a hot labor market,” the economists added.

The team reiterated its expectation for the unemployment rate to fall to 4% by the end of 2021. The rate currently sits at 6%, but the government’s latest payrolls report suggests monthly job additions will average about 1 million in the near term.

Still, the “traditional” labor shortages expected to emerge next year will present new constraints, according to the bank. The red-hot labor market could “make it difficult” for ports to reach pre-pandemic employment levels even after the health crisis ends, the team said. Such setbacks could further increase factory backorders, which already swelled in recent months due to supply chain disruptions.

The amount of time Americans spend disengaged from the labor force could also slow the recovery. The post-pandemic economy won’t be the same as the one seen before the outbreak, and those changes will make the return to work difficult for millions of Americans, Federal Reserve Chair Jerome Powell said in March.

“The real concern is that longer-term unemployment can allow people’s skills to atrophy, their connections to the labor market to dwindle, and they have a hard time getting back to work,” he said, adding the central bank needs to “keep supporting them” as the labor market creeps toward a full recovery.

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US stocks retreat from records as investors mull economic-recovery progress and new Powell comments

FILE PHOTO: U.S. Federal Reserve Chairman Jerome Powell arrives to speak to reportersin Washington, U.S., March 3, 2020. REUTERS/Kevin Lamarque

US stocks slipped from record highs as investors digest Federal Reserve Chairman Jerome Powell’s recent comments and prepare for a busy week ahead for economic data and earnings.

In an interview with CBS, which aired on Sunday, Powell said that the US is at an “inflection point” and is likely to see a boom in growth and hiring, but still faces threats from COVID-19.

“The outlook has brightened substantially,” he told CBS’s “60 minutes.” Yet he said there was a risk that coronavirus starts spreading again.

He also discussed the outlook for a digital dollar, and said the the US central bank is working hard on researching one as nervousness grows in some quarters about China’s rapid development of its own digital currency.

As the economy continues to recover from the pandemic, investors are focused in on inflation data that is due Tuesday. Economists polled by Reuters expect the consumer price inflation index to jump 2.5% from 1.7% year on year in February.

On the earnings front, Wall Street behemoths Goldman Sachs, JPMorgan, and Wells Fargo are due to report on Wednesday.

Here’s where US indexes stood at the 9:30 a.m. ET open on Monday:

Bitcoin rose as much as 2.6% to $61,229 as the crypto world prepares for Coinbase’s direct listing on Wednesday. The surge took the coin close to its all-time high of $61,742 reached on March 1.

West Texas Intermediate crude climbed 1.7%, to $60.31 per barrel. Brent crude, oil’s international benchmark, rose 1.6% to $63.97 a barrel.

Gold slipped 0.5%, to $1,737 per ounce.

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The US is recovering faster than expected but economic rebound is far from complete, Fed’s Powell says

Jerome Powell waits to testify before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
Federal Reserve Chair Jerome Powell.

  • The US economic recovery has progressed faster than expected, Fed Chair Jerome Powell said.
  • Still, a full recovery is far off and the Fed will keep support in place, he testified to Congress.
  • Today’s unemployment rate of 6.2% “underestimates the shortfall” in the labor market, Powell added.
  • See more stories on Insider’s business page.

Despite lower COVID-19 case counts, encouraging economic data, and an improved rate of vaccination, the US economy has plenty of work to do to fully recover, Federal Reserve Chair Jerome Powell said.

The US is nearing the end of the tunnel. Widespread vaccination suggests the country could have a grasp on the coronavirus’ spread by the summer – or sooner. Key indicators including nonfarm payrolls and manufacturing gauges also show sectors nearing or trending above their pre-pandemic levels. Democrats’ $1.9 trillion relief package stands to further accelerate growth coming out of lockdowns.

Still, government and Fed support are necessary to get the US back on track, Powell said.

“The recovery has progressed more quickly than generally expected and looks to be strengthening,” the central bank chief said in remarks prepared for testimony to the House Financial Services Committee on Tuesday. “But the recovery is far from complete, so, at the Fed, we will continue to provide the economy the support that it needs for as long as it takes.”

Powell reiterated that the path of the recovery hinges on the trajectory of the virus, a message uttered by Fed officials since the pandemic made landfall in the US last year. For now, that trajectory looks promising. The country reported 55,621 new cases on Monday, according to The New York Times, down 8% from two weeks ago. Hospitalizations are down 16% from two weeks ago.

The steady decline in cases has lifted household spending on goods, but the services industry is still mired in a downturn. Sectors hit hardest by the virus “remain weak,” and the current unemployment rate of 6.2% “underestimates the shortfall,” Powell said.

The central bank announced last week it would keep interest rates near zero and maintain its pace of asset purchases. It also published a new set of quarterly economic projections that reflected a considerably more optimistic outlook than the December set.

Fed policymakers now expect the unemployment rate to fall to 4.5% by the end of 2021 instead of the prior estimate of 5%, and see full-year economic growth of 6.5% this year, up from the previous forecast of a 4.2% expansion.

The new estimates reflect the strong economic gains made since December, but the Fed still has its eye on those left behind, Powell said.

“We welcome this progress, but will not lose sight of the millions of Americans who are still hurting, including lower-wage workers in the services sector, African Americans, Hispanics, and other minority groups that have been especially hard hit,” he added.

Powell is scheduled to testify alongside Treasury Secretary Janet Yellen at 12 p.m. ET on Tuesday. The two are then slated to appear before the Senate Banking Committee on Wednesday.

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Fed’s Powell says it’s not yet time to consider shrinking emergency asset purchases

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Federal Reserve Chairman Jerome Powell.

  • It’s “not yet” time for the Fed to even consider pulling back its policy support, Chair Powell said.
  • Fed policymakers ruled to hold interest rates at historic lows and maintain its asset purchases.
  • The recovery is “highly uncertain” and the economy is far from hitting the Fed’s goals, Powell said.
  • See more stories on Insider’s business page.

The Federal Reserve expects a strong economic recovery through 2021, but it still aims to maintain ultra-easy financing conditions well into the future.

Members of the Federal Open Market Committee ruled on Wednesday to hold interest rates at historic lows following the conclusion of its two-day meeting. The central bank will also maintain its pace of purchasing at least $80 billion in Treasurys and $40 billion in mortgage-backed securities each month, according to a press release.

Buying such assets accommodates smooth market functioning and thereby supports “the flow of credit to households and businesses,” the Fed said in a statement.

Yet investors and economists alike have looked to Fed officials in recent weeks for any hints at when the central bank will taper its purchases. An unexpected withdrawal from the Fed could spark a sell-off in Treasurys, rapidly lift yields, and prematurely raise borrowing costs while the economy is still rebounding.

Policymakers’ newly improved projections for growth and employment place new pressure on the central bank to tighten monetary policy. Still, it’s “not yet” time to even consider tapering due to lasting risks to the economic outlook, Powell said during a press conference.

Concerns of a rate hike coming earlier than the Fed’s signaling also overlook the lasting risks to the US recovery, the central bank chief added.

“The state of the economy in two to three years is highly uncertain and I wouldn’t want to focus too much on the timing of potential rate increase that far into the future,” Powell said.

Staying on target for inflation and maximum employment

The statement underpins previous commentary from the Fed emphasizing it will patiently wait to reach its goals of above-2% inflation and maximum employment. Economic reopening and stimulus might drive a sudden rise in inflation, but the increase isn’t likely to be permanent, Powell said.

Inflation would then need to steadily trend above 2% before the Fed fully retracts its policy support, he added.

Reaching maximum employment is set to be a similarly lengthy process. While Fed officials now see the unemployment rate falling to 4.5% in 2021, the central bank is also tracking wage growth and labor force participation to determine the labor market’s health.

“No matter how well the economy performs, unemployment will take quite a time to go down and so will participation,” Powell said. “The faster the better. we’d love to see it come sooner rather than later.”

Maintaining loose monetary policy for such a long period marks a paradigm shift for the central bank. Decades-old tenets of economic theory held that unemployment could only drop so much before lifting inflation.

That dynamic is antiquated, at least according to the Fed chair. The previous expansion showed that, even with unemployment below 4% and inflation trending below 2%, hiring and wage growth could improve in historically underserved communities. Failing to give those groups a shot at a robust recovery would set the country back as it emerges from the pandemic, Powell said.

“There was a time when there was a tight connection between unemployment and inflation. That time is long gone,” he said. “We had low unemployment in 2018 and 2019 and the beginning of ’20 without having troubling inflation at all.”

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