The Fed’s wait-and-see attitude to rate hikes is causing markets to panic

The Fed’s wait-and-see attitude to rate hikes is causing markets to panic

The Fed’s wait-and-see attitude to rate hikes is causing markets to panic

Jerome Powell, during a press conference in Washington, March 3, 2020 (AFP / Eric BARADAT)

Fed Chairman Jerome Powell once again brushed aside concerns about a resurgence of inflation and urged patience before any change in the ultra-accommodative monetary policy of the US Central Bank, which panicked markets and plunged Wall Street.

“We have no intention of raising interest rates until these conditions are met,” said Jerome Powell, referring to the Fed’s dual mandate of price stability and full employment.

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The rates will therefore remain in the range of 0 and 0.25% for a while, in which they were lowered a year ago.

Ditto for asset purchases, it is not yet time to change the program.

When the time comes to tighten monetary policy, the communication will be made widely upstream, “we are not going to surprise people with that,” he said at a conference organized by the Wall Street Journal.

Because, despite the hopes of an improvement in the economic situation, carried by the vaccinations carried out with a vengeance and by the financial aid to come from the government, the road is still long, according to him.

– No full employment for 2021 –

The Fed’s wait-and-see attitude to rate hikes is causing markets to panic

The Fed has no plans to raise interest rates at this time. (AFP / Olivier DOULIERY)

On employment, the first element of the Fed’s mandate, Jerome Powell tempered the ambient optimism: “I think it is highly unlikely that we will reach full employment this year, I think it will take time to succeed”.

The other thing to achieve is 2% inflation over the long term. Here again, the country is far from it, he said, despite fears of a rise in prices from the spring, and a return of too high inflation.

“There is a difference between a one-off rise in prices and galloping inflation (…) year after year after year”, he repeated, as he has been doing for several weeks now that the subject has been agitating the markets.

The vaccinations in the United States and the trillions of dollars of the recovery plan of Joe Biden which will come to be added to the previous financial aid make anticipate a strong economic recovery from the spring.

Consumption is expected to jump, and the employment situation to improve. Not enough, however, to return to pre-pandemic levels, when employment was at its best in 50 years.

– Finish the job –

The Fed’s wait-and-see attitude to rate hikes is causing markets to panic

Statements from the Fed boss sent bond yields on 10-year Treasuries surging, topping 1.55% from 1.48% the day before, and Wall Street fell sharply. (AFP / Angela Weiss)

These statements from the Fed boss sent bond yields on 10-year Treasuries surging, topping 1.55% instead of 1.48% the day before. The dollar climbed to its highest level in a month, and Wall Street fell sharply.

Once again, “while the markets may have expected the Fed to react to this rate hike (…), it has instead embraced the idea that yields are rising because of the economic outlook. positive, “Mazen Issa of TD Securities told AFP.

“This will fuel the belief that Fed leadership is not overly concerned about the new level of yields,” commented Krishna Guha, economist for Evercore, in a note.

Jerome Powell also defended the 1.9 trillion dollars of Joe Biden’s stimulus plan, considered too generous by some elected officials and economists, and considered as the possible trigger for too high inflation.

This plan is in the process of being voted on in Congress, and could be definitively adopted next week.

“Don’t stop until the job is done,” he pleaded, noting that “in the latest crisis fiscal policy has retreated and weakened. And this has led to a very long and slow recovery “.

The next meeting of the Fed’s Monetary Policy Committee (FOMC) will take place on March 16 and 17.

jul / vmt / cjc

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