Federal Reserve Chairman Jerome Powell has pledged to keep interest rates low for the foreseeable future, even as he has expressed hope for a strong economic recovery.
“When the time comes to raise interest rates, we will certainly do that, and that time, by the way, is not soon,” the head of the central bank said Thursday in a question and answer session presented by Princeton University.
During the wide-ranging discussion, Powell spoke about how the Fed has handled the challenges posed by the Covid-19 pandemic, as well as its expectations for what is to come.
In its latest policy statement released in December, the Federal Open Market Committee drafted its policies, saying it will maintain an accommodative position until it sees “substantial further progress” towards its employment and inflation targets.
On the employment mandate, Powell stressed the Fed’s new approach to inflation, in which rates will not rise, even if unemployment falls below levels that have historically been seen as a warning sign for pricing pressures.
“This would not be a reason to raise interest rates if we do not start seeing inflation or other imbalances that would threaten the fulfillment of our mandate,” he said.
Such an imbalance would be inflation. In recent days, several Fed officials have warned that inflation could rise faster than expected by the central bank and could force the removal of political accommodation earlier than committee members predicted.
The Fed’s short-term lending rate is anchored close to zero and continues to buy at least $ 120 billion in bonds each month. Core inflation is around 1.4%, well below the Fed’s 2% target.
“If inflation moves in undesirable ways, we have the tools to do that and we will use them,” he said. “No one should doubt that.”
Powell noted that while the economy faces strong challenges and there is still a long way to go until the labor market heals, there is reason to be optimistic.
“We were in a good place in February 2020 and we think we can get back there, I would say, much earlier than we feared,” he said.
Powell spoke on the same day that the Department of Labor reported the largest increase in unemployment claims in August.
The launch came a week after the department reported that non-farm wages fell in December for the first time since April amid a passion for the leisure and hospitality sector due to Covid restrictions.
Despite these challenges, Powell said the economy faces a bright future, in part because of the lack of contagion that occurred during the 2008 financial crisis. There were some concerns expressed about the continued growth of corporate debt, such as and the broad values of the stock market, but the Fed chairman said he is not concerned about these issues.
“Every economy, and certainly our economy, faces a lot of long-term challenges,” he said. “But I would say that there were no obvious imbalances threatening the ongoing expansion. Indeed, you can’t identify something that would look like if it exploded, the expansion.”