‘Be careful not to prematurely discuss exiting easy monetary policy’
US Federal Reserve Chair Jerome Powell said that the Fed should be careful not to prematurely discuss an exit from ultra-easy monetary policy as the US economy is “far from” the central bank’s goals.
“Now is not the time to be talking about exit” from easy money policy, Powell said at a virtual event held by Princeton University on Thursday, Xinhua news agency reported. “And by the way, try not to talk about exit if you’re sending that signal, because markets are listening.”
Powell noted that “we’ll let the world know” when it’s time to discuss tapering the Fed’s asset purchases, and the central bank should be careful “not to exit too early.”
“We’ll communicate very clearly to the public and we’ll do so, by the way, well in advance of active consideration of beginning a gradual taper of asset purchases,” he said.
Powell’s remarks came as some Fed officials said in recent weeks that the Fed could begin tapering asset purchases as soon as this year. But the central bank last month had decided to continue its asset purchase program at least at the current pace of US $120 billion per month until it sees “substantial further progress” in employment and inflation.
“Powell doesn’t seem to agree with some of his colleagues that taper talk now is the best way to avoid a taper tantrum later,” Roberto Perli, a former Fed staffer and now head of global policy research at Cornerstone Macro, tweeted on Thursday.
“Powell did the right thing by refusing to put a timeframe on tapering. That way the focus stays on ‘substantial further progress,’ which is a high hurdle,” Perli said.
“Powell’s comments on the central bank’s asset purchases did boost our confidence in our forecast that they will not taper this year,” echoed Ryan Sweet, a senior director at Moody’s Analytics.
“Powell is sticking with the Fed’s new flexible average inflation targeting regime as he is putting less emphasis on forecasts, particularly inflation, and greater emphasis on actual economic outcomes,” Sweet wrote Thursday in an analysis.
Fed board governor Lael Brainard also said on Wednesday that the central bank’s current pace of asset purchases will remain appropriate “for quite some time” as the economy slowly recovers from the Covid-19 pandemic.
“The economy is far away from our goals in terms of both employment and inflation, and even under an optimistic outlook, it will take time to achieve substantial further progress,” she said.
