US Economic Recovery Faster than Expected: Fed Chairman

 

The economic recovery is faster than expected, and the US Fed is far from running out of ammunition and food: Fed Chairman Powell

The USA Fed Chairman Powell stated at a press conference that the US economy is recovering faster than expected, but it is not certain whether this situation will continue. The US labor market is clearly far from achieving full employment. May require the federal government to implement more financial support. Powell said that "moderate" inflation does not mean far more than 2%. He only hopes that average inflation will reach 2%. The Fed is ready to adjust its asset purchases when the time is right. It is far from exhausted and there is much more it can do.


Fed Chairman Powell said at a press conference that the US economy is recovering faster than expected

It is not certain whether this situation of US economic recovery will continue. The US labor market is clearly far from being realized. Full employment may require more financial support from the federal government. Powell said that "moderate" inflation does not mean far more than 2%. He only hopes that average inflation will reach 2%. 

The Fed is ready to adjust its asset purchases when the time is right. It is far from exhausted and there is much more it can do.

 

Fed Chairman Powell stated that he will be firmly committed to achieving policy goals

 The Fed’s statement today made important adjustments, which clarified the long-term prospects. 

Under the new normal, interest rates will be closer to the lower limit. Strong policy guidelines will help the economy. If there are risks that prevent the Fed from achieving its goals, the Fed is prepared to adjust its monetary policy stance appropriately. Even after raising interest rates, the policy will remain loose.

 

Infographics on the USA Economy in Coronavirus times
US economy in Corona era

The changes in the forward-looking guidelines demonstrate our firm commitment to long-term vision and our firm commitment to achieving full employment and price stability goals.

 Still committed to using all tools. The economic outlook remains uncertain. Today’s guidance is expected to be "enduring."

 Hope the public will understand the main content of the new guidelines. Over time, our forward-looking guidance will bring strong support. The Fed has rejected opinions about setting rules or formulas for forward guidance.

 

The FOMC unanimously supports long-term goals

 Everyone believes that it is necessary to deal with long-term economic changes. We are the first central bank in the world to use this monetary policy framework, and there is no precedent to follow. The action support framework must be used to gain credibility.

 

Powell pointed out that the economic recovery in the past 60 days has been faster than expected, and it is uncertain whether the recovery faster than expected can be sustained.

 Household spending has resumed three-quarters of the previous decline, and fiscal stimulus has provided timely support for income. Seeing signs of improvement in business investment, overall activities are still lower than the level before the epidemic. 

The unemployment rate is still high, there are millions of unemployed people, and the unemployed population of millions will not be ignored. Social distancing measures help delay the spread of the virus.

 Economic development will depend on the ability to control the virus, and it is unlikely that the economy will fully recover before people feel safe. Some areas of the economy will be struggling before the emergence of vaccines. Cheap and fast testing will also help the economy. For a period of time, some activities will be difficult to resume.

 

Inflation is well below the 2% target

 The pandemic has a major impact on inflation. The weakening of demand in industries affected by the epidemic has pushed down consumer prices, and inflation has fallen below the Fed's target. 

Although the prices of some consumer goods have risen, overall inflation has remained stagnant. The goal is to keep inflation at a level slightly above 2% for a period of time.

 Policymakers expect that it will take some time to achieve the 2% inflation target, because the weak economy will put downward pressure on inflation. 

"Moderate" inflation does not mean far more than 2%. I don’t want high inflation, I just want the average inflation to reach 2%. Exceeding the target moderately is not permanent.

 

Regarding employment, Powell said that maximum employment is a comprehensive and inclusive goal. The high unemployment rate is not a problem of monetary policy. 

When 11 million Americans find jobs again, they may need more support. Full employment is not a single figure similar to inflation. Full employment requires increased labor participation rates and wages.

 Full employment will include low unemployment rates, high labor participation rates and higher wage levels. In the assessment of full employment, the problem of high unemployment among the black population will be studied. We promise not to forget the millions of unemployed people.

 

Powell questioned the reliability of the data on unemployment claims from the Federal Epidemic Unemployment Assistance (PUA) 

The unemployment rate may be 8.4%. But if you count the number of people who should be considered unemployed, then the unemployment rate may be 3 percentage points higher. 

To maximize employment, we need to pay attention to many indicators and whether the job market environment is in line with our judgment.

 Obviously, the labor market is still a long way from full employment. The labor market has recovered, but there is still a long way to go. Hope to restore a strong job market. A tight job market has many advantages, especially when inflation is low.

 In a tight job market, wages will rise, labor participation rates will rise, and inflation will be within the target framework. It is believed that a rather low unemployment rate can be achieved while avoiding a worrying surge in inflation.

 

Fed Chairman Powell reiterated that the Fed has the power to borrow but not to spend. It is essential to maintain credit flows

The asset purchase action restored market operations and promoted a more relaxed financial environment.

 It is expected that at least the current asset purchase rate will be maintained. Prepare to adjust asset purchases as needed. After the crisis, emergency tools will return to the toolbox.

 

The fiscal policy actions so far have brought about key changes. The economy may need more financial and monetary support. 

State and local governments deal with the decline in revenue. Financial support plays a vital role for good economic progress. Financial support plays a vital role for good economic progress. It is expected that the pace of economic recovery will not slow down.

 

The Fed’s guidance is very strong. It reflects that we are confident in achieving our goals. The FOMC's expectation that inflation will not exceed 2% does not contradict the guidelines. When full employment is achieved, inflation will pick up. This is a slow process. Our guidelines will help influence economic results. Until the economy achieves a long-term recovery, policies will remain loose.

 The Federal Reserve's bond purchases supported market stability. The monthly debt purchases amounted to 120 billion U.S. dollars, which was higher than during the financial crisis, which further eased monetary policy. 

We can still adjust debt purchases and expand or reduce the scale. Will closely monitor changes in the situation and adjust in real time.

 

Fed officials expect that economic growth will be rapid at first and then slow to a more normal rate

 It can be expected that in the early stages of recovery, the rate of improvement will be the fastest.

 Fed FOMC officials widely look forward to more financial support. The lack of financial support will be reflected in economic activities and other aspects. 

The Federal Reserve has conducted extensive research on inequality and racial differences, and we serve all Americans. The Fed does not have the tools to solve the problem of inequality. Inequality is a drag on the economy. 

The stagnant income growth and reduced mobility of relatively low-income workers hindered economic development. These problems actually need to be solved by government officials. Because these problems hinder economic productivity.

 

Powell said that he is learning to coexist with the new crown epidemic and participate in economic activities. The economy has so far been resilient to the end of unemployment benefits. The lack of relief will ultimately harm the economy. 

Until the economic expansion progresses smoothly, the Fed’s policy will remain highly accommodative until our inflation rate is moderately over-adjusted for a period of time. I will not say that we ran out of ammunition. There are many things we can do, and there are many tools available.

 

The number of participants in the Main Street Loan Program (MSLP) is increasing. If necessary, increase the size of the Main Street Loan Program (MSLP). 

Research some issues of the Main Street Loan Program (MSLP). The plan will cover the whole country and it is expected that more banks and borrowers will participate. Some lending institutions worry about underwriting expectations.


 Some adjustments will be made to the Main Street Loan Program (MSLP)

It will make the Main Street Loan Program (MSLP) more available and expand access. Allow companies in need to obtain loans. Many borrowers are facing difficulties. Their companies have stopped working and cannot repay their loans. 

We need more financial support. We have never heard of the report of the Zero Loss Target of the Main Street Loan Program (MSLP). The Federal Reserve must go through the banking system to implement the Main Street Loan Program (MSLP). It is hoped that banks will bear certain risks when participating in MSLP.

 

There was no bubble in the last economic recovery. Quantitative easing is not closely related to financial stability. The Fed will continue to monitor risks. Monetary policy is not the first line of defense to maintain financial stability. 

Supervision is the main tool for maintaining financial stability. Need for supervision, stress testing and macroprudential tools. I don’t know if there is a link between asset prices and financial stability.

 

Someone voted against the FOMC

Powell said in response to "someone voted against the FOMC" that we had a very efficient discussion and it is normal to have different opinions. 

Further support for the real estate market requires more action by Congress. When you have different thoughts and opinions, this is normal.


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