“We are going to be very incremental over time and with great transparency when the economy has almost fully recovered, we will withdraw the support we have provided in an emergency,” said Powell, in a rare interview, on the NPR.
The Fed pushed its key interest rate to zero last spring and bought $ 120 billion in treasury bills and mortgage-related assets to support the economy during the coronavirus pandemic.
“As the economy recovers – and we have provided advice to the public on this – as we move substantially towards our goals, we will gradually reduce the amount of treasury bills and asset-backed securities. mortgages that we buy, ”said Powell. .
“And then in the longer term, we put in a test to allow us to raise interest rates,” added Powell.
Economists believe the Fed faces a tough job pulling out all monetary stimulus, even if they are transparent.
“The tapering is going to be really tricky, even if the Fed goes ahead and tags well in advance,” said Megan Greene, a Harvard University fellow.
“This represents a binary shift and therefore I don’t see the Fed being able to go down without rolling the markets,” she said.
Markets were troubled in 2013 and 2014 as the Fed normalized its policy after the 2008 financial crisis.
The Fed has forecast that its first interest rate hike will not take place until after 2023, but markets are predicting a take-off at the end of 2022.
When asked if he was “scared” by the amount of money the Fed has pumped into the economy, Powell said the amount of money is less important in determining inflation than it is. was not in the past.
If inflation turns out to be above the Fed’s 2% target, the central bank will use its tools to bring inflation back to target, Powell said.
The Fed chairman has said the US federal government deficit is on an “unsustainable track” and will need to be addressed once the economy recovers.
“But this time is not now,” he said.
are expected to open lower Thursday even as the recent rise in 10-year T-bills TMUBMUSD10Y,