Chair Jerome H. Powell Jackson Hole
The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test.
We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time.
August 27, 2021
https://www.federalreserve.gov/newsevents/speech/powell20210827a.htm
The big fear: The Fed will be slow to rein in inflation, paving the way for a sustained take-off in prices, along with a housing bubble that policy makers will eventually have to deal with by jacking up interest rates and derailing the recovery.
No longer will the Fed raise interest rates to head off higher inflation as the job market tightens. Instead, it will allow unemployment to fall as far as possible, and only seek to slow things down when it’s clear that faster inflation is becoming a problem.
In a nod to racial and other inequities plaguing the economy, the Fed also explicitly expanded its definition of what constitutes maximum employment, saying job gains should be broad-based and inclusive.
Summers Says Powell Arguments Misread Inflation Risk
With businesses rethinking their models and people rethinking their lives in light of the pandemic, there’s structural change under way, Summers said. It could mean that the U.S. can’t go back to the pre-Covid era of sub-4% unemployment and a tame rate of inflation
He also highlighted that Powell in his remarks didn’t mention housing costs, which have been rising rapidly.
Bloomberg 27 August 2021
The Fed chairman says everything the White House wants to hear
The message is that the Fed will remain super-accommodative, even as nominal GDP could grow 10% this year. Investors, who love the Fed’s support for asset prices, bid up stocks on the news. This won’t hurt Mr. Powell’s renomination chances at the White House.
Mr. Powell justified the Fed’s continued and historic policy ease on grounds that while the outlook for the job market is excellent, the labor market recovery has been uneven. But then it always is after a recession.
WSJ Editorial Aug. 29, 2021
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