–Virus Resurgence to Hit First-Quarter Economy
By Denny Gulino
WASHINGTON (MaceNews) – Federal Reserve Chair Jay Powell Wednesday said reaching the inflation target is going to take “some time” in an environment of disinflation around the world, when price pressure in any sector is no longer persistent.
In the near term, however, he warned the problem is the resurging virus, already affecting high-frequency measurements of the economy and threatening first quarter growth.
Answering reporters’ questions after the last policy meeting of the year, Powell only intensified the Fed’s intention to stay the course, supporting the economy and market stability for as long as it takes to approach the inflation and jobs targets.
The quarterly projections of FOMC participants restated the outlook for near zero rates through 2023 and saw inflation next year at 1.8%, a tenth higher than the outlook in September, not hitting 2% until 2023.
Powell said he is “pleased” with how markets have come to see the new policy framework as credible that allows inflation to run above target for a while to compensate for the years it has been below target.
Getting to that point, though, won’t be easy. “There are significant disinflationary pressures around the world and there have been for a while,” he said. “They persist today. It’s not going to be easy to have inflation move up. It’s going to take some time.”
As expected the FOMC, in keeping rates unchanged, repeated that along with an economic recovery of some size, the uncertainty is still high and may be increasing. Powell said the resurgence of virus infection is bigger than the initial waves and so will probably have an additional economic impact.
“Now this spike is so much larger that I think and I think forecasters generally do think that this will have an effect on suppressing activity,” he said, “particularly activity that involves people getting together in bars and restaurants and airplanes and hotels. You are starting to see that.”
How bad will it be? “We don’t know. There are a lot of estimates,” he said. “The first quarter will show significant effects from this.”
Powell welcomed the apparent imminence of more congressional pandemic relief. Capitol Hill talks went on Wednesday with an expectation for a formal announcement at any time and votes possible later this week.
The package will be close to a trillion dollars, will extend and improve unemployment benefits, will replenish the Paycheck Protection Program and provide more money for testing and vaccine distribution among a host of other provisions. It apparently will not include the liability protections for business that have been a Republican priority nor the enhanced support of state and local government finances Democrats wanted.
The current dimensions of the Fed’s asset purchase program is appropriate, Powell repeated and whenever the economy is strong enough, inflation high enough and jobs plentiful enough to taper the accommodation there will be plenty of warning, he said.
“When we see ourselves on a path to achieve that goal, we will say so undoubtedly well in advance of any time we would consider gradually tapering the pace of purchases,” Powell said.
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Contact this reporter: denny@macenews.com.
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