Powell, Jerome H

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    The Federal Reserve chair says the United States needs ‘more inclusive prosperity.’

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    Jerome H. Powell, the Federal Reserve chair, said on Tuesday that the central bank was focused on returning the economy to full strength, and he emphasized that the Fed would be more ambitious and expansive in its understanding of what that meant.Speaking before House lawmakers on Tuesday afternoon, Mr. Powell emphasized that the Fed was looking at maximum employment as a “broad and inclusive goal” — a standard it set out when it revamped its policy framework last year. That, he said, means the Fed will look at employment outcomes for different gender and ethnic groups.“There’s a growing realization, really across the political spectrum, that we need to achieve more inclusive prosperity,” Mr. Powell said in response to a question, citing lagging economic mobility in the United States. “These things hold us back as an economy and as a country.”The Fed cannot solve issues of economic inequality itself, he said. Congress would need to play a role in establishing “a much broader set of policies.”But Mr. Powell’s explanation of full employment came as many lawmakers wanted to talk about the second of the central bank’s two goals: stable inflation. The Fed chair was quizzed repeatedly about the recent pickup in price gains, with Republicans warning that the trend could become dangerously entrenched — even quoting statistics about recent jumps in bacon and used-car prices — as Democrats warned that the central bank should not be quick to react to the price pressures.“There’s sort of a perfect storm of very strong demand and weak supply due to the reopening of the economy,” Mr. Powell said, adding that much or all of the recent overshoot in inflation came from short-term bottlenecks. “They don’t speak to a broadly tight economy.”Mr. Powell added that price jumps have been bigger than expected and that the Fed was monitoring them closely, but he said they were still expected to wane over time. He also acknowledged that economic data was uncertain now, given quirks in supply and demand as businesses reopen.“We have to be very humble about our ability to really try to draw a signal out of it,” Mr. Powell said.He said he had “a level of confidence” that strong price gains would be temporary but was not certain when bottlenecks would clear up. Nevertheless, the goods and services categories where costs are picking up quickly, like restaurants and travel, are clearly tied to the pandemic.“It should not leave much of a mark on the ongoing inflation process,” he said. More

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    The Economic Gauges Are Going Nuts. Jerome Powell Is Taking a Longer View.

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    Despite the current confusion, his outlook, based on hard lessons from the 2010s, is essentially optimistic.Jerome Powell, the Federal Reserve chair, made clear that he believes the fundamentals of the economy are stable, even though the pandemic has thrown it for a loop.Eric Baradat/Agence France-Presse — Getty ImagesThe economy is changing so fast that just making sense of it is no easy task. Within a few months, the United States has gone from no jobs and depressed prices to widespread labor shortages and uncomfortably high inflation.In this most unusual recovery, the signals that economic policymakers use to inform their decisions are going haywire. What is one to make, for example, of the combination of strong growth in jobs and wages paired with millions of working-age people who seem to have no interest in returning to the work force?It’s easy to imagine Jerome Powell, the Federal Reserve chair, as a pilot in unfamiliar territory with malfunctioning gauges. He’s doing what you’d want a pilot to do in those circumstances: looking to the horizon.A recurring theme on Wednesday, as he spoke to the news media after a Fed policy meeting, was his focus on the things that haven’t changed about the economy, the lessons learned in the expansion of the 2010s. He is resisting the urge to conclude that the pandemic fundamentally changed the most important dynamics.To Mr. Powell’s mind, these are those lessons: American workers are capable of great things. The labor market can run hotter for longer than a lot of economists once assumed, with widely beneficial results. There are many powerful structural forces that will keep inflation in check. And for those reasons, the Fed should move cautiously in raising interest rates, rather than risk choking off a full economic recovery too soon.His is a profoundly optimistic view of the coming years. He does not see the labor shortages of 2021 as evidence of lasting scars to the potential of American workers, but rather as a reflection of the difficulty of reopening large sectors of the economy and reallocating labor after a pandemic.“You look through the current time frame and look one and two years out — we’re going to be looking at a very, very strong labor market,” Mr. Powell said, describing an environment of low unemployment, high rates of participation and “rising wages for people across the spectrum.”And he was dismissive of the possibility that spikes in both wages and prices would turn into a lasting 1970s-style spiral.“Is there a risk that inflation will be higher than we think? Yes,” Mr. Powell said. “We don’t have any certainty about the timing or the extent of these effects from reopening.”But he added: “We think it’s unlikely they would materially affect the underlying inflation dynamics that the economy has had for a quarter of a century. The underlying forces that have created those dynamics are intact.” These include globalization and an aging world population.If you squint, you can even see the application of lessons from three big missteps in Mr. Powell’s career as a central banker.In 2013, as a Fed governor, he helped push Chair Ben Bernanke toward “tapering” the pace of bond-buying in the Fed’s quantitative easing program, which created global financial tremors and led the central bank to reverse course. (In one sign of how deep the scars of that experience are, Mr. Powell carefully said on Wednesday that at this meeting, they merely talked about talking about tapering their current Q.E. purchases, which was itself a subtle shift from his previous guidance that it was not yet time to talk about talking about tapering.)In 2015, Mr. Powell supported a decision to begin raising interest rates to prevent inflation from taking off. This also caused global economic problems — and an under-the-radar economic slowdown in the United States — even though with hindsight the American job market had lots of remaining potential to improve.And in 2018, under his leadership, the Fed raised interest rates four times despite an absence of inflationary pressure. The last of these, especially, came to look like a mistake within days, and Mr. Powell soon reversed course.At each of those junctures, the people who argued that the American labor market was already at or near its potential — a fundamentally pessimistic view about the number of people who could be coaxed to work by the right mix of compensation and job opportunities — looked with hindsight to be wrong. So were the people who routinely predicted that an outburst of problematic inflation was right around the corner.The risk with this approach is that Mr. Powell is, in effect, fighting the last battle — applying the lessons of those episodes to a different economic environment.There are, after all, quite a few differences between then and now. Most significantly, fiscal policymakers have acted on a much larger scale now, and the trillions of dollars coursing through the economy surely create different types of inflation risks. All else being equal, looser fiscal policy — larger continuing deficits — implies that tighter monetary policy is needed to keep a lid on inflation.Moreover, there are some signs — early, but striking — of a more lasting change in the power dynamics between capital and labor. Workers appear to have the upper hand with employers in ways they haven’t in a generation.This could turn out to be a temporary result of the post-pandemic moment, and is mostly positive (Mr. Powell explicitly characterizes higher wages and more expansive job opportunities as a good thing). But if we are returning to a more 1960s-style dynamic in which workers demand pay that is higher than productivity gains would imply are justified, and employers readily give it to them and raise their prices, it will mean that Mr. Powell’s Fed is on track to get behind the curve on inflation.Ultimately, then, the question of whether the Fed is on a wise course will depend on whether the pandemic fundamentally changed things, or just created a miserable year for the economy, after which things return to normal.One trait Mr. Powell has shown, including in the 2013, 2015 and 2018 episodes, is a willingness to pivot when evidence emerges that his judgment is wrong. The best hope for the economy of the 2020s is that his pilot’s view of the horizon is correct. The second best is that if it turns out to be wrong, he adjusts quickly. More

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    The Fed Meets as Economic Data Offers Surprises and Mixed Signals

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    The central bank will release its policy statement on Wednesday, followed by a news conference with Chair Jerome H. Powell.Investors will scour the Federal Reserve’s policy statement and economic projections Wednesday for any hint that recent data surprises — including faster-than-expected inflation and slower job growth — have shaken up the central bank’s plans for its cheap-money policies.Economic policymakers are unlikely to make major changes at a time when interest rates are expected to stay near zero for years to come, but a series of tiny adjustments to their policy messaging and new economic projections could combine to make this week’s meeting one to watch, and an important moment for markets.The central bank will release new economic forecasts from its 18 officials for the first time since March, when the Fed projected no rate increase until at least 2024. Policymakers could pencil in an earlier move, pulling the initial rate rise forward to 2023.Markets will also watch for even the subtlest hint at what lies ahead for the Fed’s $120 billion in monthly bond purchases, which have kept many kinds of borrowing cheap and pushed up prices for stocks and other assets. Several Fed officials have said they would like to soon discuss plans for slowing their bond buying, though economists expect it will be months before they send investors any clear signal about when the “taper” will start.The Fed is scheduled to release the policy announcement from its two-day meeting at 2 p.m., followed by a news conference with Chair Jerome H. Powell.The central bank may want to use the meeting and Mr. Powell’s remarks to “start getting us ready, otherwise, we’re going to be in complete denial until we realize — ‘Ouch, the Fed is stepping away,’” said Priya Misra, head of global rates strategy at T.D. Securities. The point may be to say “they are not running for the exits, but they are at least planning the escape route.”As it charts a path forward for policy, the Fed will have to weigh signs of economic resurgence — rapid price gains as demand jumps back faster than supply, as well as plentiful job openings — against the reality that millions of people have yet to return to work. The shortfall probably owes to a cocktail of factors, as older workers retire, would-be immigrants remain in their home countries, and virus fears, child-care issues and expanded government benefits combine to keep potential employees at home.Many workers may simply need time to shuffle into new and suitable jobs, and the Fed is likely to signal that it plans to continue providing policy support as they do that. Here’s what else to watch for.The Fed is working with higher inflation.The Fed is aiming for inflation that runs “moderately above 2 percent for some time” so that it eventually averages 2 percent. Its policy statement has long noted that price gains have run “persistently below this longer-run goal.” After several months of above-2 percent inflation numbers, it may be time to update that language to reflect recent price spikes.The Fed’s preferred inflation gauge jumped 3.6 percent in April from a year earlier, and the more up-to-date and closely related Consumer Price Index inflation measure popped by 5 percent in May.But the Fed — like many financial economists — expects that pop to prove temporary. The 5 percent increase in C.P.I. happened partly because prices fell during last year’s intense lockdowns, making current year-over-year comparisons look artificially elevated. Without that so-called base effect, the increase would have been in the neighborhood of 3.4 percent.Prices are definitely up, but will it last?The Consumer Price Index slumped early in the pandemic, but now it’s up relative to its pre-pandemic trend growth.

    Data reflect the Consumer Price Index for all urban consumers, indexed so that 1982-1984=100.Source: Bureau of Labor Statistics, New York Times calculationsBy The New York TimesThat is still obviously on the high side. The rest of the surge came as wages increased and demand bounced back faster than global supply chains, fueling shortages in computer chips and causing shipping snarls. While base effects should fade quickly, it is unclear how rapidly supply bottlenecks will be sorted out. The semiconductor issue may clear up over the coming months, for instance, but some importers have estimated that a shipping container shortage could last at least into next year, potentially lifting prices for some products.Compounding that uncertainty, the jump in inflation came faster than officials had expected. If the Fed’s preferred inflation index stood completely still at its April level, inflation would grow by 2 percent this year. Instead, prices have continued to grind higher and are most likely already on track to exceed the Fed’s 2.4 percent forecast for 2021. That means officials are going to have to revise their estimates upward when they release new economic projections. The big questions are by how much and whether the revisions bleed into next year.Mr. Powell is likely to maintain that the recent surge is temporary, yet he will probably have to address the risk that inflation expectations and wages will rise more briskly, locking in the faster price gains. He has previously said that is a possibility, but an unlikely outcome.“He may be a little less strident than he was at the April press conference,” said Michael Feroli, chief U.S. economist at J.P. Morgan.Policy plans may take some tweaking.Economists at Goldman Sachs don’t expect the Fed to begin hinting that it is planning to slow its bond purchases until August or September, with a formal announcement in December, and an actual start to tapering at the beginning of next year.Even then, it’s going to take a long time for the Fed to really unwind its policy support. The Fed has suggested it will first signal that it is thinking of slowing bond purchases, then actually taper, and only then lift rates. Strategists at Goldman estimate that “even if the labor market recovery accelerates rapidly from here,” the first rate increase would probably still be “at least” 15 months away.Mr. Powell could say or suggest that the policy-setting Federal Open Market Committee is taking the first baby step toward that process — what has been called “talking about talking about tapering” — during his news conference.The Fed balance sheet has exploded The central bank is buying $120 billion in government-backed bonds each month, keeping its balance sheet steadily expanding.

    Source: Federal Reserve, accessed via FREDBy The New York TimesOfficials could also begin to pencil in a timetable for rate increases. The Fed’s so-called dot plot of interest rate projections showed no interest rate increases through 2023, the last year in the forecast, as of March. Many economists expect it to show one rate increase in 2023 after revisions.Labor is lagging.But the Fed’s outlook is likely to remain patient — signaling years of low rates ahead — because the job market has a lot of room left to recover. About seven million fewer people reported being employed in May than in February 2020.While recent job gains have been robust by normal standards, they’ve been slow compared with the hole that remains in the labor market. After climbing by a solid 785,000 jobs in March, hiring has slowed to a more subdued 418,500 jobs on average over the past two months.The Fed has two goals — stable inflation and maximum employment — and the recent hiring slowdown means the second target could take a little bit longer to achieve.“Bottom line, I would like to see further progress than where we are right now,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said on CNBC shortly after the May jobs report was released. “We want to be very deliberately patient here, because this was a huge, huge shock to the economy.”That’s why economists are looking out for tweaks this week — but no major shift away from the Fed’s supportive stance. More

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    Jerome Powell strikes a hopeful tone but emphasizes the pandemic’s uneven costs.

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    Jerome H. Powell, the Federal Reserve chair, struck a hopeful tone about the United States economy in a speech on Monday — but he emphasized that the economic fallout from the coronavirus pandemic has disproportionately harmed vulnerable communities.“While some countries are still suffering terribly in the grip of Covid-19, the economic outlook here in the United States has clearly brightened,” Mr. Powell said. And in the United States, “lives and livelihoods have been affected in ways that vary from person to person, family to family, and community to community.”Mr. Powell used the remarks to preview an upcoming Fed report that will show how Black and Hispanic workers lost jobs at a greater rate in pandemic lockdowns and how the pandemic pushed mothers out of the labor force and made it harder for people without college degrees to hang onto work.Among the statistics he highlighted from the Survey of Household Economics and Decisionmaking, which he said will be released later this month:About 20 percent of adults in their prime working years without a bachelor’s degree were laid off last year, compared to 12 percent of college-educated workers.More than 20 percent of Black and Hispanic prime-age workers were laid off in 2020, versus 14 percent of white workers.Roughly 22 percent of parents were not working or were working less thanks to child-care and school disruptions.About 36 percent of Black mothers, and 30 percent of and Hispanic mothers, were not working or were working less.“The Fed is focused on these longstanding disparities because they weigh on the productive capacity of our economy,” Mr. Powell said. “We will only reach our full potential when everyone can contribute to, and share in, the benefits of prosperity.”Mr. Powell said that while achieving an equitable economy is the job of many parts of government, the Fed has a role to play with both its economic tools and in its bank supervision and community development work.“Those who have historically been left behind stand the best chance of prospering in a strong economy with plentiful job opportunities,” Mr. Powell said. “We see our robust supervisory approach as critical to addressing racial discrimination, which can limit consumers’ ability to improve their economic circumstances.” More

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    Fed Leaves Interest Rates Unchanged as Economy Begins to Heal

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    The Federal Reserve said the economy had “strengthened” but opted to continue providing support while playing down a rise in inflation.Jerome H. Powell, the Federal Reserve chair, said on Wednesday that the nation would need to show greater progress toward substantial recovery before policies designed to bolster the economy would be lifted.Stefani Reynolds for The New York TimesJerome H. Powell, the Federal Reserve chair, made it clear on Wednesday that his central bank wants to see further healing in the American economy before officials will consider pulling back their support by slowing government-backed bond purchases and lifting interest rates.Mr. Powell spoke at a news conference after the Fed announced that it would leave rates near zero and continue buying bonds at a steady clip, as expected. He painted a picture of an economy bouncing back — helped by vaccines, government spending and the central bank’s own efforts.The Fed’s post-meeting statement also portrayed a sunnier image of the American economy, which is climbing back from a sudden and severe recession caused by state and local lockdowns meant to contain the coronavirus.“Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,” the policy-setting Federal Open Market Committee said in its release. “The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.”Yet Fed officials signaled that they were looking for more progress toward their goals of full employment and stable inflation before reconsidering their cheap-money stance. Officials made it clear that they see a recent increase in inflation, which is expected to intensify in the months to come, as likely to be short-lived rather than worrying.And Mr. Powell was careful to avoid sounding as though he and his colleagues knew precisely what the future held. He pointed out, repeatedly, that reopening America’s giant economy from pandemic-era shutdowns was an uncharted project.“It’s going to be a different economy,” Mr. Powell said at one point, noting that some jobs may have disappeared as employers automated. At another, he said that when it came to inflation, “we’re making our way through an unprecedented series of events.”For now, things are looking up. After reaching a low point a year ago, employment is rebounding, consumers are spending and the outlook is increasingly optimistic as vaccines become widespread. Data that will be released on Thursday is expected to show gradual healing in the first three months of the year, which economists think will give way to rapid gains in the second quarter.Mr. Powell pointed out that even the areas hardest hit by the virus have shown improvement, but also that risks remain.“While the level of new cases remains concerning,” he said, “continued vaccinations should allow for a return to more normal economic conditions later this year.”Fed officials have signaled that they will keep interest rates low and bond purchases going at the current $120 billion-per-month pace until the recovery is more complete. The Fed has said it would like to see “substantial” further progress before dialing back government-backed bond buying, a policy meant to make many kinds of borrowing cheap. The hurdle for raising rates is even higher: Officials want the economy to return to full employment and achieve 2 percent inflation, with expectations that inflation will remain higher for some time.“A transitory rise in inflation above 2 percent this year would not meet this standard,” Mr. Powell said of the Fed’s criteria for achieving its average inflation target before raising interest rates. When it comes to bond buying, “the economy is a long way from our goals, and it is likely to take some time for substantial further progress to be achieved.”He later said that “it is not time yet” to talk about scaling back, or “tapering,” bond purchases.Unemployment, which peaked at 14.8 percent last April, has since declined to 6 percent. Retail spending is strong, supported by repeated government stimulus checks. Consumers have amassed a big savings stockpile over months of stay-at-home orders, so there is reason to expect that things could pick up further as the economy fully reopens.Yet there is room for improvement. The jobless rate remains well above its 3.5 percent reading coming into the pandemic, with Black workers and those in lower-paying jobs disproportionately out of work. Some businesses have closed forever, and it remains to be seen how post-pandemic changes in daily patterns will affect others, like corporate offices and the companies that service them.“There’s no playbook here,” said Michelle Meyer, the head of U.S. economics at Bank of America, adding that the Fed needed time to let inflation play out and the labor market heal, and that while the signs were encouraging, central bankers would only “react when they have enough evidence.”The Fed has repeatedly said it wants to see realized improvement in economic data — not just expected healing — before it reduces its support. Based on their March economic projections, most Fed officials are penciling in interest rates near zero through at least 2023.Still, some economists have warned that the government’s enormous spending to heal the economy from coronavirus may overdo it, sending inflation higher. If that happens, it might force the Fed to lift interest rates earlier than expected, and prominent academics have fretted that officials might prove too slow to act, hemmed in by their commitment to patience.Markets have at times shown jitters on signs of potential inflation, concerned that it would cause the Fed to lift rates, which tends to dent stock prices.Inflation Is Starting to Jump More

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    Still Getting Your Head Around Digital Currency? So Are Central Bankers.

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    #styln-signup .styln-signup-wrapper { max-width: calc(100% – 40px); width: 600px; margin: 20px auto; padding-bottom: 20px; border-bottom: 1px solid #e2e2e2; } America’s Federal Reserve says it is in no rush to issue a digital currency, but it is coming under intense and increasing pressure to research and understand the design and potential of digital money. From the […] More

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    Fed Chief Says U.S. Economy Is at an ‘Inflection Point’ as Risks Remain

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    “It’s going to be smart if people can continue to socially distance and wear masks,” Jerome Powell said on “60 Minutes.”WASHINGTON — The economy is at an “inflection point” and on the cusp of growing more quickly, the Federal Reserve chairman, Jerome H. Powell, said in an interview broadcast on Sunday night. But he warned that the crisis was not yet over.In the interview, with “60 Minutes” on CBS, Mr. Powell said that the American economy “has brightened substantially” as more people are vaccinated and businesses reopen. But he cautioned that “there really are risks out there,” specifically coronavirus flare-ups, if Americans return to normal life too quickly.“The principal risk to our economy right now really is that the disease would spread again more quickly,” he said. “And that’s troubling. It’s going to be smart if people can continue to socially distance and wear masks.”The Fed has held interest rates near zero since March 2020 and has been buying about $120 billion in government-backed bonds each month, policies meant to stoke spending by keeping borrowing cheap. Fed officials have been clear that they will continue to support the economy until it is closer to their goals of maximum employment and stable inflation — and that while the situation is improving, it is not there yet.Mr. Powell reiterated that approach on Sunday, saying that the central bank would “consider raising rates when the labor market recovery is essentially complete, and we’re back to maximum employment, and inflation is back to our 2 percent goal and is on track to move above 2 percent for some time.”But he said it would “be a while until we get to that place.”Discussing inflation, Mr. Powell once again made clear that the Fed wanted to see “sustainable” price increases before it adjusted monetary policy.“Inflation has been below 2 percent,” he said. “We want it to be just moderately above 2 percent. So that’s what we’re looking for.” “And when we get that,” he added, “that’s when we’ll raise interest rates.”Some prominent onlookers have warned that the economy has the potential overheat as the federal government pumps out trillions of dollars in stimulus aid and other spending and as the economy reopens, allowing consumers to spend more money.So far, no sustained inflation spike has materialized.Figures show the economy is recovering, albeit slowly. Employers added more than 900,000 workers to payrolls last month, but the country is still missing millions of jobs compared with February 2020, and just last week state jobless claims climbed.Mr. Powell on Sunday highlighted that while some workers were doing well, others had yet to get back to where they were before Covid-19 lockdowns, a phenomenon that will influence when the Fed reduces or removes policy support.“What you’re seeing is some parts of the economy are doing very well, have fully recovered, have even more than fully recovered in some cases,” Mr. Powell said. “And some parts haven’t recovered very much at all yet. So you do see real disparities between different parts of the economy. It’s sort of unusual for an economy like ours.”Mr. Powell also pointed to data that shows the burden is falling hardest on those least able to bear it: Lower-income service workers, who are heavily people of color and women, have been hit hard by job losses.While he expects those workers to get back to their jobs more quickly as the economy rebounds, the Fed needs to “stick with those people and support them as they try to get back to where they were in life, which was working,” he said, adding, “They were in jobs just a year ago.” More