Jerome Powell Says Federal Reserve May Pull Back Economic Support If Jobs Keep Growing

Federal Reserve Chairman Jerome Powell said Friday that the Fed may pull back its efforts to prop up the economy if the recovery continues, NPR reports.

Powell said at a conference that the Fed will continue to monitor the data and adjust its policies as needed. While the delta variant poses a “near-term risk” to the economy, he expressed optimism about the trend of the recovery.

Powell noted that unemployment has plummeted and schools are reopening.

“These favorable conditions for job seekers should help the economy cover the considerable remaining ground to reach maximum employment,” Powell said.

But he also cautioned that rising inflation is “cause for concern” though he believes the higher rates are “transitory” and will soon drop.

Not too soon:

Even as Powell hinted at a pullback in the future, he stressed that the Fed pulling back its support too soon could be damaging.

“Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful,” he said.

The comments came members of the Federal Open Market Committee, which sets the central bank’s policies, call for a quick pullback of its program to purchase assets to alleviate economic stress.

The Fed has bought about $120 billion in US treasuries and mortgage-backed securities per month to stimulate economic demand.

Powell said that there has been “clear progress” but wants to see additional data to determine whether the labor market could withstand a pullback.

“If the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year,” he said.

Pressure from policymakers:

Powell’s speech came after Robert Kaplan, the president of the Dallas Fed, said that the Federal Reserve should taper its asset purchases next month.

“I'm going to be suggesting that we should move toward announcing a plan as early as our September meeting and begin our tapering process in October,” he told Yahoo Finance.

Kaplan argued that the program is causing “excesses and imbalances” in the housing market.

“It will be much healthier if we wean off these purchases soon,” he said. “I think we'll be in a much better position down the road, and have a healthier recovery if we wean off some of these purchases and remove some of these probably unintended side effects.”


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