Powell reiterates his stance regarding interest rate hikes
• “At some point perhaps later this year we will start to allow the balance sheet to run off,” said the Fed Chair
• “We’ll be normalizing policy, meaning we’re going to end our asset purchases in March,” he added
Federal Reserve Chairman Jerome Powell reiterated his stance on Tuesday for the need for tighter monetary policy and said that the economy is healthy.
Powell said he expected a series of interest rate hikes this year, along with other reductions in the stimulus provided by the Fed during the pandemic.
“As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the year,” he said at his confirmation hearing before the U.S. Senate Committee on Banking, Housing and Urban Affairs.
“At some point perhaps later this year we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy,” he added.
Higher interest rates control inflation by slowing down the flow of money, which has been running rapidly through the economy as the Fed and Congress have combined to provide more than $10 trillion worth of stimulus.
In the new economic projections, the Fed forecasts that inflation would run at 2.6% next year, compared to the earlier prediction of 2.2%, and the unemployment rate would fall to 3.5%.
Following the end of a two-day policy meeting, the central bank said it would be buying $60 billion of bonds each month starting January and will end the program by March.
The initial bond buyback tapering was scheduled to wrap up by mid-June 2022; if the committee chooses to accelerate, the process will close earlier in the spring, giving the Fed a scope to raise interest rates anytime afterwards.
“If we see inflation persisting at high levels longer than expected, then if we have to raise interest more over time, we will,” Powell said. “We will use our tools to get inflation back.”
Picture Credits: Reuters
