The US economy is coming back to life after the pandemic. This was announced by the head of the US Federal Reserve (Fed) Jerome Powell, who spoke at a symposium on Friday, which usually takes place in the mountain resort of Jackson Hole in the US state of Wyoming.
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Last year and this year, due to the pandemic, it took place rather online and covid remained the number one topic. Powell warned that the central bank must remain cautious and not tighten its policy until a sufficient number of Americans return to work.
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“At a time when there is a significant downturn in the labor market and the pandemic continues, such a mistake could be particularly damaging,” said Powell.
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Nevertheless, the Fed chairman stressed that the spread of a more contagious mutation of coronavirus, the so-called delta variant, poses a “short-term risk” to economic growth.
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According to its boss, the US Federal Reserve will probably start tightening its monetary policy as early as this year, but its main interest rate will remain at its current level for a longer period of time.
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According to the AP, his words suggest that the central bank will probably announce a reduction in the pace of securities purchases from the current $ 120 billion (approximately CZK 2.6 trillion) per month in the fourth quarter.
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However, Powell stressed that restricting purchases of securities would be no signal of the start of a rise in the key interest rate, which the central bank has kept close to zero since last March.
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In his speech, Powell also drew attention to the labor market, where six million people remain unemployed compared to the pre-pandemic period. At the same time, employers are looking for employees, with a record 10.1 million job vacancies recorded in June.
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Inflation is rising after covid
In his monologue, the Fed chairman also spoke of rising inflation, which he described as “a cause for concern”. Data from the Bureau of Economic Analysis showed that prices (measured by the index of personal consumption expenditure) rose by 4.2 percent year on year, a rate that the United States has not remembered for more than 30 years.
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Powell said that given the situation, he expected high inflation to be only “temporary” and that factors such as unusually high used car prices would soon fall.
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“Politics can and should look through temporary fluctuations in inflation,” Powell said.
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What about financial markets?
No report on financial markets has been without the mention of Jackson Hole for at least a month. Analysts had high hopes for the Fed chief’s speech, hoping to learn more about the tightening of monetary policy.
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However, this took hold before the event began, as the increase in coronavirus cases did not allow Powell to say much more than the minutes of the Fed’s July meeting of the Fed’s monetary committee showed that most central bankers in the US support the Fed’s curtailment of supportive bond purchases. already this year.
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The focus is now on next week, when statistics on developments in the US labor market will be published. This could become a determining factor influencing the actions of central bankers at the September meeting of the Monetary Committee.
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Stock markets responded to Powell’s words mainly by growth, the dollar also strengthened and the prices of gold and silver rose.
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The Jackson Hole Symposium has been held since 1978 by the Federal Reserve Bank of Kansas City, which, along with eleven other U.S. regional reserve banks, forms the Federal Reserve System, the American equivalent of the central bank. The symposium addresses key economic issues facing the US and global economies. It is usually attended by 120 to 150 personalities, this year it will probably not be even half due to the pandemic.
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