At the testimony before the Senate, Fed Chair Jerome Powell cautioned that the economic recovery is uneven. He pledged to maintain sufficient support to achieving the employment and inflation targets.
Concerning economic developments, Powell refrained from sending a too optimistic message. He affirmed that the recovery highly depends on the pandemic situation. He noted that the recovery “remains uneven and far from complete, and the path ahead is highly uncertain”. He added that, “the economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved”.
In light of rising inflation expectations and speculations of tapering, Powell pledged to maintain QE and other monetary policy measures. He stressed that the Fed has shifted to average inflation targeting. As the central bank seeks to achieve inflation that “averages 2% over time”, it would tolerate inflation “moderately above 2% for some time”, after inflation has been running below that level for some time. He reiterated that the central bank’s maximum employment goal is a “broad and inclusive”, highlighting that the policy decisions depend on the “assessments of shortfalls of employment from its maximum level” rather than by “deviations from its maximum level”.
Powell acknowledged that the recent rise in long-dated yields is a reflection of market optimism. Yet, he emphasized that the Fed’s “job is not done”, adding that interest rates would remain low and asset purchases would continue “at least at the current pace until we make substantial further progress towards our goals”. Unlike ECB’s Lagarde, who warned that increasing borrowing costs could tighten financing conditions and “accordingly the ECB is closely monitoring the evolution of longer-term nominal bond yields”, Powell did not comment of what actions would be done in case of further yield surge.