Fed chief Powell compares inflation risk to March 2020

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Fed chief Powell compares inflation risk to March 2020

Powell compared his remarks, described by some analysts as surprisingly hawkish, with a characterization of the economic risk from an emergent variant of COVID-19 that has unnerved officials and financial markets worldwide as not comparable to the spring of 2020 when the pandemic erupted. We apologize, but this video didn't load.

Tap here to see other videos from our team. Try refreshing your browser, or Indeed, the Fed chief told members of the Senate Banking Committee that the U.S. economy continues to strengthen, job growth remains robust and inflation is more than twice the Fed's flexible target of 2 per cent annually, which is expected to last longer than he and other officials had anticipated. He also acknowledged that his preferred term for describing inflation as a likely passing phenomenon should probably be retired, suggesting policymakers would make a more concerted effort to rein in price increases in the months ahead.

At this point in time, the economy is very strong and inflationary pressures are high, and I think it is appropriate to consider wrapping up the taper of our asset purchases, which we announced at the November meeting, perhaps a few months later, and I expect that we will discuss that at our upcoming Senate meeting in a couple of weeks, Powell, who testified alongside Treasury Secretary Janet Yellen. The Fed is expected to taper its US $120 billion in monthly purchases of Treasuries and mortgage-backed securities by June of next year after reducing its support for the economy this month. In early 2020 the program was introduced to help the economy get through the COVID- 19 epidemic.

Markets tied to Fed policy expectations pushed back the timeline for the start of rate hikes. Powell retracted some momentum and drove bond yields higher after seeing a potentially faster taper pace and inflation persisting well into 2022. Ben Jeffery, interest rate strategist at BMO Capital Markets, said Powell was more hawkish than many were expecting given the variant risk. He said now is the time to get rid of the transitory characterization of inflation and said that maybe a conversation about tapering earlier than previously assumed might be appropriate. The central bank will progress from the end of the bond-buying taper to its first interest rate hike as early as June 2022, according to futures tied to the expected outcome of the Fed policy meetings. The FedWatch program of the CME Group gave a greater than 70 per cent probability of a rate hike at the meeting, up from roughly 50 per cent on the day.

Health officials are trying to figure out how transmissible and deadly the new Omicron variant is, and how much current vaccines remain protective. The United States has imposed a travel ban on some southern African nations where the strain is prevalent. The Delta variant of COVID 19 slowed the U.S. economy over the summer, and caused supply chain snags that have led to increased inflation. It is about transmissibility, it s about the ability of the vaccines to address any new variant, it is about the severity of the disease once it is contracted, and experts tell us that we will know quite a bit about those answers within a month, Powell testified. We'll know something within a week to 10 days. It is a risk to the baseline, but it is not really baked into our forecast, and we can only make an assessment of what the impact would be on the economy. Powell acknowledged that Omicron is elevating the uncertainty surrounding the economy and possibly adding to inflation risks, but he did not believe that its effects would be comparable to March 2020 when the economy went into a short but historically deep recession.