Central Bank Will Begin Reducing Bond Purchases 'Well Before' Raising Interest Rates, Powell Says -- Update
By Paul Kiernan
WASHINGTON -- Federal Reserve Chairman Jerome Powell said
Wednesday that the central bank will begin to slow the pace of its
bond purchases "well before" raising interest rates.
The Fed has been buying at least $120 billion a month of
Treasury debt and mortgage-backed securities since last June to
hold down long-term borrowing costs. Since December, the central
bank has said the economy must make "substantial further progress"
toward its goals of maximum employment and 2% inflation before it
scales back those purchases.
"We will taper asset purchases when we've made substantial
further progress toward our goals, from last December when we
announced that guidance," Mr. Powell said in a virtual event held
by the Economic Club of Washington, D.C. "That would in all
likelihood be before--well before--the time we consider raising
The Fed has said it will hold rates near zero until it sees the
labor market return to full employment and inflation rise to 2% and
is forecast to moderately exceed that level for some time. Mr.
Powell reiterated that he thinks it is highly unlikely that the Fed
would raise interest rates this year and noted that most
central-bank officials see rates remaining near zero through
Mr. Powell's comments came a day after the Labor Department
reported the biggest one-month jump in the consumer-price index
since 2012. While the Fed targets a different measure of
inflation--the personal-consumption-expenditures price index--the
CPI provides much of that index's raw data.
Tuesday's report fueled concerns that inflation, dormant through
the record-long economic expansion from 2009 to 2020, could soon
become a challenge for policy makers. Mr. Powell acknowledged those
worries while reiterating that the Fed seeks inflation "that is
moderately above 2% for some time" to make up for the past decade's
"For quite some time, many people were saying, 'Well, you'll
never get above 2%,' because it [has] been very hard to get back to
2%," Mr. Powell said. "Now more of the discussion is on the other
Both the Biden administration and the Fed acknowledge the
possibility of prices rising faster than usual in coming months as
the economic recovery strengthens and demand for goods and services
temporarily outruns supply. But both expect the acceleration in
inflation to prove temporary.
"In most cases, this type of inflation is transitory: the price
of lumber or energy rises, but then stabilizes at a higher level or
decreases, with no further impact on future inflation," the White
House Council of Economic Advisers said in a blog post about
inflation on Monday, a day before the Labor Department's report.
"This example underscores an important distinction between price
levels and inflation, with the latter being the rate at which
levels move up and down."
Mr. Powell in the past has emphasized that the type of inflation
that preoccupies the Fed is a process rather than the outcome of an
idiosyncratic event such as the economy rebounding after a
Write to Paul Kiernan at firstname.lastname@example.org
(END) Dow Jones Newswires
April 14, 2021 15:04 ET (19:04 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.