“The short -term risks for inflation are raised oriented and those for the downward employment: a difficult situation. Bilateral risks imply that there is no risk without risk”. It is the key passage of the intervention of the president of the Fed Jerome Powell, who at an event in Rhode Island released comments in line with what has been declared last week in the press conference following the September meeting of the Fed, not providing indications on the rates path.
“If we loosen too aggressively, we could leave the work on inflation unfinished and have to reverse the course later to completely restore inflation to 2% – he explained – if we keep a restrictive policy for too long, the labor market could weaken unnecessarily. When our objectives are in tension like this, our regulatory framework requires us to balance both sides of our double mandate”.
The labor market and inflation
“Recent data show that the rhythm of economic growth is slowed down – said the number one of the Fed – The unemployment rate is low, but it has slightly increased. The increase in employment is slowed down and the risks downward for the occupation have increased. At the same time, inflation has recently increased and remains rather high. In recent months, it has become clear that the balance of the risks has moved us to adopt, Economic policy orientation closest to neutrality in last week’s meeting “.
According to Powell, “the overall economic effects of the significant changes in commercial, immigration, tax and regulatory policies are yet to be evaluated. A reasonable basic scenario is that the effects on inflation related to duties will be relatively short -lived: a one -off variation of the price level. A” one -off increase “does not mean” all at once “. The tariff increases will probably require time to be absorbed by the chains of chains supply. consequently, this one -off price increase will probably be distributed on several quarters and will translate into slightly higher inflation during this period “.
Financial markets and rates
The leader of the Central Bank was asked how much importance and his colleagues attribute to market prices and if they have greater tolerance for the highest values. “We examine the general financial conditions and we wonder if our policies are influencing them in a way that we are trying to get,” said Powell – but it is right, from many points of view, for example, the prices of the actions are evaluated quite well “.
“The markets listen to us, follow us and make an esteem where they think that rates will go. And then they are prescriptions,” Powell said in a part of the conversation dedicated to mortgages. Although Powell stressed the high share values, he said that this “is not a period of high risks for financial stability”.
Independence and attacks
“We keep our minds down and do our job,” Powell said about the Fed that is held out of politics. “Mostly those who call us politicized is only a low blow – he said – we do not start discussing with external people, we only do our job”.
Powell spoke at a time when the Fed is subjected to strong pressures by the Trump administration to cut the rates, with an attempt by the president to fire the governor Lisa Cook pending the Supreme Court, and the administration officials who question the validity of the Fed emergency programs during the pandemic and during the economic crisis of 2007-2009.
Powell said that these efforts, in extraordinary circumstances, have probably helped the economy to avoid far worse outcomes: “These two consecutive world historical crises have left scars that will accompany us for a long time. In democracies around the world, the trust of the public in economic and political institutions has been put to the test. Those of us are at the service of the Public Administration at this moment must concentrate with firmness on their own Better than their skills, in the midst of stormy seas and strong transverse winds “, said Powell, underlining that” despite these two unique and extremely significant shocks, the US economy has registered performance equal to or higher than those of other large advanced economies in the world “.
