On Wednesday (April 28), following the decision of the Federal Open Market Committee (FOMC) to keep the policy rate at its target range of 0-0.25%, Fed Chairman Jerome Powell offered his comments on the policy outlook.
Mr Powell said the temporary rise in inflation this year did not meet the criteria for a rate rise; The Federal Reserve will do everything we can to support the recovery as long as it is needed; Now is not the time to start talking about tapering.
On the economy, he said, it is still a long way from its employment and inflation targets. The recovery remains uneven and incomplete, and it is likely to take some time before substantial further progress is made; Economic activity has only recently picked up and it will take some time for it to reach that level; The economy cannot fully recover until people feel it is safe to resume their activities; For there to be substantial progress [in the economy], there will also be significant progress on the epidemic.
On inflation, Powell said inflation will rise a little further and then slow down. It will take time for inflation expectations to rise, which is expected to be accompanied by a strong recovery in the Labour market; If inflation expectations do rise above the 2 per cent level, tools will be used to bring them down.
On the labor market, Powell said labor market conditions continue to improve, but the unemployment rate remains high. At 6 percent, the unemployment rate understates the lack of employment. The pattern of economic development may be different. Service workers may find it difficult to find jobs, and there are still many unemployed. We are still a long way from full employment.
While Powell was speaking, financial market volatility increased: The U.S. index extended its short-term slide to a new session low of 90.55, down nearly 50 points from its post-Fed high. The non-US currencies are generally higher, with the pound/US dollar up over 30 points in the short term, the euro/US dollar up nearly 30 points in the short term, and the US dollar/Canadian dollar down more than 20 points.
Yields on the 10-year US Treasury note fell short term to a new day low of 1.6129%.
Spot gold stood at $1,780 an ounce, up more than 0.2% on the day to $1,782.33 an ounce. Spot silver was up $0.2 at $26.14 an ounce for the short term, narrowing its daily loss to 0.28%.
Fed-watcher Anstey noted that Fed Chairman Colin Powell described the Fed’s support for the economy as “strong,” similar to that of Bank of Japan Governor Haruhiko Kuroda (who said “the current framework for monetary easing is very strong”). Notably, central bankers tend to use the term ‘powerful’ when they are not taking new steps, in part substituting words for actions, describing past actions as having ‘powerful’ effects on the present.
Fed watcher Boesler said Fed Chairman Colin Powell reiterated that “it’s going to take some time before we see substantial progress” on the dual mandate. The Fed has used the same language for several months to describe expectations of substantial progress.
FX and interest rate observer Vivien noted that Fed funds futures show a slight drop in bets on Fed tightening in 2022, although not by much, and a recalibrating of expectations as Fed Chairman Colin Powell reiterated that “now is not the time to talk about tapering.”