By Yasin Ebrahim
Investing.com - Federal Reserve Chairman Jerome Powell said Wednesday, a "patiently accommodative monetary policy stance" is important to boost the labor market and the overall economy following a stall in recent months.
"Also important is a patiently accommodative monetary policy stance that embraces the lessons of the past—about the labor market in particular and the economy more generally," Powell said Wednesday to the Economic Club of New York on the "State of the U.S. Labor Market."
The U.S. central bank chief, citing the Fed's Statement on Longer-Run Goals and Monetary Policy Strategy, reiterated that a strong labor market would not solely be a trigger to tighten monetary policy as full employment, part of the Fed's dual mandate, was unlikely to cause an unwanted increase in inflation.
"Recognizing the economy's ability to sustain a robust job market without causing an unwanted increase in inflation, the statement says that our policy decisions will be informed by our 'assessments of the shortfalls of employment from its maximum level' rather than by 'deviations from its maximum level,' Powell said . "This means that we will not tighten monetary policy solely in response to a strong labor market."
"As reading from March in April last year fall out of the 12 month window, we'll probably see an increase in [inflation] readings, ... but that won't be very large, or persistent in all likelihood," Powell said. "We also may see, as the economy reopens, a burst of spending as there's quite a lot of savings on people's balance sheet," leading to some pressure on prices.
The Fed chairman said the ballooning U.S. deficit was not an immediate concern to the central bank at a time when millions remain unemployed.
"[W]e're a long way from the situation where we would have to take into account the government's ability to finance itself ... We will continue to set to best achieve maximum employment and price stability. Federal budgetary issues, do not play a role in our deliberations"
Some market participants have recently echoed Powell's sentiment on inflation, expecting the central bank to maintain its status quo on policy as it is unlikely the immediate U.S. economic backdrop, which is at the beginning of a recovery, will change rapidly to trigger the Fed into action.
"If they [the fed] are at the point where they're changing their tune ... It's probably because you either see huge inflationary pressure, which is [unlikely to occur] anytime soon, or they see the economy overheating, which is also hard to see right now when we're starting to see the beginning of the recovery," Johan Grahn, Head of ETF Strategy at Allianz Investment Management said in an interview with Investing.com.
"I don't foresee that they [the Fed] are going to change their tune, but if they do, they will be very careful in terms of signalling ... and the market will have a time to reprice accordingly," Grahn added.
