Even as the US economic recovery is rapidly taking off, the Federal Reserve reaffirmed its commitment to stay the course. Last Sunday, Chairman Jerome Powell reaffirmed the central bank’s commitment to keeping the loose monetary policy in place. This includes maintaining the low-interest rates they set at the start of the pandemic.
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Federal Reserve Says Raising Interest Rates Unlikely
Powell confirmed that even as productivity surges, interest rates won’t move for the year. Inflation remains low and millions of Americans still require assistance from the effects of coronavirus. “I think it’s highly unlikely that we would raise rates anything like this year,” Powell told Scott Pelley of “60 Minutes” Sunday.
“I’m in a position to guarantee that the Fed will do everything we can to support the economy for as long as it takes to complete the recovery,” he added.
Pelley said Powell described it as “unspeakable” last year’s pandemic-laden economic crisis. By the spring of 2020, the Fed chairman thought “the level of uncertainty was really frightening” which led them to cut interest rates. This month, the situation seemed to turn the corner.
Powell said the economy is at an inflection point with strong growth coming up. Meanwhile, the pandemic-inflicted weakness is behind them.
US Recovery is Underway
Part of the support for Americans includes zero short-term borrowing rates and $120 billion a month in bond purchases. The Federal Reserve placed these measures in place between February and April 2020 as the market essentially shut down as lockdowns happened.
With vaccinations in full swing, and businesses slowly reopening yet again, the economy is stirring up. So far, the US has recovered around 13 million since the height of the crisis. The job is by no means done, as there are 9 million more jobs still needing resurrecting. With states and local governments slowly lifting restrictions, recovery is underway.
However, Powell said the US will need more effort. Especially for those in lower-income brackets. “We don’t have the answer to everything, but the job that we do for the benefit of the public is incredibly important,” Powell noted. “We do understand that if we get things right, we can really help people.
If the people who are at the margins of the economy are doing well, then the rest of it will take care of itself,” he added. Meanwhile, Fed officials are looking at the GDP rising by 6.5% in 2021. This is potentially the fastest growth rate the US will experience since 1984.
“We and a lot of private-sector forecasters see strong growth and strong job creation starting right now. Really, the outlook has brightened substantially,” Powell noted.
Substantial Risks
The growing economy doesn’t mean there are no risks. In particular, Powell reiterated his worry about rising Covid cases. He said people should continue to wear masks and physical distance to keep the recovery going.
While the US financial system’s stability remains unquestioned, Powell does worry about cyberattacks. If the US won’t stay vigilant, cyberattacks could happen one day and cause serious damage.
In contrast, Powell said he’s not worried about inflation. At present, it’s running around 1.6% and is well below the Fed target of 2.0%. The Central Bank pledged to keep interest rates low even if inflation goes over the target. Powell said he would like inflation “on track to move moderately above 2% for some time.
When we get that, that’s when we’ll raise rates. But at the same time, we do have the ability to wait to see real inflation. And that’s what we plan on doing. We’re going to support the economy until recovery is really complete,” Powell noted.
Watch the Inside News report following Fed Chairman Jerome Powell, who said says it’s ‘highly unlikely’ the Fed will raise rates this year:
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