U.S. Federal Reserve Chairman Jerome Powell on Friday signaled his support to start scaling back later this year a massive bond-buying program that was launched in response to the coronavirus pandemic.
Attending virtually the Fed's annual symposium at Jackson Hole, Wyoming, Powell said he was of the view at the bank's meeting last month that "it could be appropriate to start reducing the pace of asset purchases this year" and that the economy has since seen "more progress in the form of a strong employment report for July."
At the same time, the Fed will be "carefully assessing incoming data and the evolving risks," Powell said, citing the spread of the highly contagious Delta variant of the coronavirus that has been pushing up the number of cases in the United States despite vaccination efforts.
In March last year, the central bank cut its key interest rate to near zero and introduced large-scale asset purchases to inject liquidity into the world's largest economy. It has currently been buying a total of $120 billion a month in Treasury and mortgage-backed securities.
While touching on the Fed's pledge to continue asset purchases at the current pace until "substantial further progress" has been made toward its goals of achieving maximum employment and inflation averaging 2 percent over time, Powell said, "My view is that the 'substantial further progress' test has been met for inflation."
"There has also been clear progress toward maximum employment," he added.
The United States has seen inflation running well above 2 percent as the economy has rapidly reopened on the back of mass vaccination efforts and fiscal support, creating a big spike in demand.
But Powell maintained that the current high readings are likely to prove "transitory," in part because they are largely a product of "a relatively narrow group of goods and services that have been directly affected by the pandemic and the reopening of the economy."
"We would be concerned at signs that inflationary pressures were spreading more broadly through the economy," he said.
On labor market conditions, Powell said the outlook has brightened "considerably" in recent months, noting that the pace of total hiring is faster than at any time in the recorded data before the pandemic.
"With vaccinations rising, schools reopening, and enhanced unemployment benefits ending, some factors that may be holding back job seekers are likely fading," he said. "While the Delta variant presents a near-term risk, the prospects are good for continued progress toward maximum employment."
Powell, meanwhile, emphasized that an interest rate hike is not expected anytime soon.
"The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test," he said.
"We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis," Powell said.
In its meeting in mid-June, the Fed indicated it would start raising interest rates in 2023, earlier than previously expected, amid anticipation of price hikes and expansion of job opportunities.
The Jackson Hole symposium, hosted by the Federal Reserve Bank of Kansas City, is closely watched as a possible venue for Fed chiefs to make major policy announcements.
The gathering was planned to be held in person, but switched to a virtual format at the last minute due to surging COVID-19 infections.
