Powell says Fed is still a long way from changing policy and expects inflation to moderate

Federal Reserve Chairman Jerome Powell said on Wednesday the economy needed to improve further before the central bank changed its ultra-relaxed monetary policy.

In remarks prepared for the House Financial Services Committee, the central bank chief noted improvements, but said the labor market in particular was still well below what it was before the Covid-19 pandemic .

Powell noted that the Fed’s benchmark of “further substantial progress” towards full employment and stable prices remains “still a long way off.” He noted that Fed officials are at least talking about slowing the pace of asset purchases.

Regarding inflation, Powell said it “has risen considerably and is likely to remain high for the next few months before moderating.”

But he has stuck with his oft-stated belief that the current surge is temporary and will be offset as conditions return to normal.

Markets have been watching the Fed’s communications to see when the central bank will start cutting its minimum of $ 120 billion in bond purchases per month as it keeps interest rates near zero.

Powell noted that the two policy measures “together with our strong guidance on interest rates and our balance sheet will ensure that monetary policy will continue to provide strong support to the economy until the recovery is complete.” .

The president’s comments are part of his twice-yearly commissioned testimony to Congress on the state of monetary policy and the economy.

As he has done in the past, Powell noted that the pandemic-related blow to the economy falls on those least able to afford it.

“Labor market conditions have continued to improve, but there is still a long way to go,” he said. “Job gains are expected to be significant in the coming months as public health conditions continue to improve and some of the other pandemic-related factors currently weighing them down diminish.”

As the unemployment rate has fallen to 5.9% from its pandemic peak of 14.8%, the Fed is focused on an inclusive employment mandate across all racial, gender and income groups.

“Despite substantial improvements for all racial and ethnic groups, the hardest hit groups still have the most ground to regain,” said Powell.