The Federal Reserve will notify investors in advance of plans to withdraw emergency support to the economy, Fed Chairman Jerome Powell said Thursday.
“Over time, very gradually and with great transparency when the economy recovers almost completely, we will withdraw the support we provided in emergencies,” Powell said in a rare interview on National Public Radio.
The Fed pushed its interest rate to zero last spring and bought $ 120 billion in mortgage-backed securities and assets to support the economy during the coronavirus pandemic.
“As the economy recovers – and we’ve been giving guidance to the public about it – as we make significant progress towards our goals, we’ll gradually repay the amount of Treasury and mortgage-backed securities we buy,” Powell said.
“And then we set up a long-term test that would allow us to raise interest rates,” Powell added.
Economists think the Fed is facing a difficult job in withdrawing all monetary incentives, even if it is transparent.
“The narrowing will be really inconvenient, even if the Fed goes ahead and directs it in advance,” said Megan Greene, an associate at Harvard University.
“It’s a binary shift and that’s why I don’t see the Fed being able to shrink without launching a market,” she said.
Markets were subdued in 2013 and 2014 as the Fed normalized policy after the 2008 financial crisis.
The Fed has predicted that the first increase in interest rates will occur only sometime after 2023, but price markets will be abolished at the end of 2022.
Asked if he was “scared” by the amount of money the Fed pumped into the economy, Powell said the amount of money was less important in determining inflation than it had been in the past.
If inflation turns out to be higher than the Fed’s 2% target, the central bank will use its tools to bring inflation back to target, Powell said.
The chairman of the Fed said that the deficit of the American federal government is on an “unsustainable path” and that will have to be resolved after the recovery of the economy.
“But that time is not now,” he said.
they were supposed to open lower Thursday, even as the ten-year TMUBMUSD10Y vault record recently rose,