(Reuters) – The U.S. economic recovery remains “uneven and far from complete” and it will be “some time” before the Federal Reserve considers changing policies it adopted to help the country back to full employment, Fed Chair Jerome Powell said on Tuesday.
FILE PHOTO: Federal Reserve Chairman Jerome Powell listens to a question at a House Financial Services Committee hearing on “Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response” in the Rayburn House Office Building in Washington, U.S., December 2, 2020. Greg Nash/Pool via REUTERS/File Photo
Powell began is testimony before the Senate Banking Committee as Wall Street looked set for its sixth straight day of declines from last week’s record highs, although losses were pared after the release of his comments. Fears about rising U.S. Treasury yields hit the tech sector particularly hard.
The U.S. central bank’s interest rate cuts and purchases of $120 billion in monthly government bonds “have materially eased financial conditions and are providing substantial support to the economy,” Powell said in prepared remarks.
STOCKS: The S&P 500 pared losses and was last off 0.42%; The tech-heavy Nasdaq was off 1.23%
BONDS: The 10-year U.S. Treasury note yield slipped to 1.3483%; 2s were flat at 0.1109%
FOREX: The U.S. dollar index pared gains was up about 0.06%
IAN SHEPHERDSON, CHIEF ECONOMIST, PANTHEON MACROECONOMICS, NEW YORK “In one line: No surprises; still glum.
“Chair Powell broke no new ground in his testimony, emphasizing the grim state of the current economy – especially the labor market – and the uncertain outlook. He acknowledged that the Covid numbers have fallen recently, but this came after noting that the economic momentum has ‘slowed substantially’ following the resurgence of the virus in the fall, and Mr. Powell made no mention of the startling speed and extent of the drop in cases and hospitalizations.
“As the economy remains a ‘long way from our employment and inflation goals’, the Fed believes the current policy stance remains appropriate; it will be ‘some time’ before any changes are required. Inflation is no near-term threat, thanks to the impact of Covid on some sector, but the Chair reminded Senators that even when inflation does rise, the Fed wants to see it above the target for ‘some time’ before raising rates.
“Mr. Powell also emphasized that the FOMC’s new Strategy has shifted the Fed’s view of the implications of a tightening labor market; it will no longer assume that rates need to rise just because unemployment is at a low level. Mr. Powell presumably wants to try to persuade markets that a strengthening economy does not necessarily mean that rates have to rise. Good luck with that when the post-Covid surge in activity become clear.”
ERIC JUSSAUME, DIRECTOR OF FIXED INCOME, CAMBRIDGE TRUST, BOSTON
“For the most part he spoke as expected. It was short, it reiterated that short-term rates are going to stay where they are, and the pace of asset purchases isn’t going to change anytime soon.”
“He didn’t stir the markets enough to cause a selloff. Accommodation is going to be here for the foreseeable future.”
MATTHEW KEATOR, MANAGING PARTNER, THE KEATOR GROUP, LENOX, MASSACHUSETTS
“If you look back at (Powell’s) initial tenure, there was some ambiguity as to whether the Fed stood. But over the last year, in response to the pandemic, he’s done an excellent job communicating their commitment to stable markets and full employment.
“There may come a time when the Fed gets concerned about (inflation) but if you look at their past comments they’re hoping for some level of inflation.
“The policy shift to an average inflation target gives them flexibility which will allow them to see if it’s transitory or sustainable.”
Compiled by Alden Bentley and the global Finance & Markets Breaking News team