Jerome Powell believes inflation will be high until 2022 and sees rates hike premature
The president of the Federal Reserve (Fed), Jerome Powell, has said that the high inflation that has been registered in recent months in the United States will last longer than expected and will carry over until 2022, although he has also stressed that if the price rise is far from its objective, the central bank will act to avoid it.
During an online event held by the Reserve Bank of South Africa, Powell explained that inflation “will probably last longer than previously expected, probably well into next year.” The central banker has clarified that the main scenario also follows that these price increases are transitory and the rate slows down.
“If we saw a serious risk of inflation moving persistently to higher levels, we would undoubtedly use our tools to preserve price stability while also taking into account the implications of our maximum employment goal,” Powell said.
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Regarding the main tool of monetary policy, asset purchases, Powell has stressed: “I think now is the time to reduce [purchases] but I do not think it is time to raise rates.”
According to the central banker in his last monetary policy meeting, the Fed will communicate its program of reduction of purchases (‘tapering’) in its meeting between 2 and 3 November.
The goal is to abandon net purchases in June 2022. The minutes of the September meeting included a possible plan that contemplates 15,000 million of reduction of purchases per month.
Currently, the Fed goes to the markets every month to buy $120 billion in assets. Of that figure, 80,000 million are used to buy government bonds, while another 40,000 million are used to acquire mortgage securitizations.