Federal Reserve Bank Chair Jerome Powell discussed his goals for maximum employment and price stability amid Covid-19.
Every year in August, the world’s central bankers come together to discuss economic policy at the Jackson Hole Economic Symposium in Wyoming held by the Federal Reserve Bank. Owing to the Delta variant, this year, the conference was held virtually from August 26, 2021 to August 28, 2021, with the theme: “Macroeconomic Policy in an Uneven Economy”.
From the decision to start tapering bond purchases to the measures to boost employment—here are the key points discussed at the central bank jamboree last month.
The disproportionate impact of the pandemic
Fed Chair Jerome Powell’s much-awaited address began with acknowledging the impact of Covid-19 on employment and the global stock market. He said, “Total employment is now 6 million below its February 2020 level, and 5 million of that shortfall is in the still-depressed service sector.” He also admitted the unequal impact of Covid-19 on the economy. The author of a research paper presented at the summit, Professor Mian, noted “As the rich get richer in terms of income, it creates a saving glut.” This glut forces interest rates to fall, making the rich richer. He affirmed, “Inequality begets inequality. It is a vicious cycle, and we are stuck in it.”
Still, Powell believes that the Fed is doing its best in terms of inflation and is making “clear progress” towards increasing employment. He noted, “We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis.”
Tapering monthly bond purchases from next year
He adds that over the past year, core personal expenditures inflation has run at 3.6 percent. This is well above the Fed’s “2 percent longer-run objective”. In light of this, he talked about transitioning from money easing to money tightening to curb inflation. He shared the Fed’s plans to start paring back their bond purchases, also known as tapering. “At the FOMC’s recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year,” Powell explained.
The President of the Federal Reserve Bank of St Louis James Bullard said that the central bank should complete tapering by the end of March 2022.
Avoiding any rash financial decisions
Though Powell has a plan, he is in no rush to set it in motion. In his speech, he mentioned that central banks have always faced the problem of distinguishing between transitory inflation spikes and more “troublesome developments”. In keeping with that, he doesn’t want to make any rash economic decisions based on the pandemic. He expounded, “While the underlying global disinflationary factors are likely to evolve over time, there is little reason to think that they have suddenly reversed or abated.” He said that inflation is likely to remain even after the pandemic. For him, the point of concern would be when inflationary pressures spread “more broadly through the economy”.
Powell’s speech caused the stocks to edge higher. That’s because investors felt reassured that the Fed support isn’t going anywhere soon as that tapering won’t begin for a while.
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