Federal Reserve Chair Jerome Powell said Friday that as long as hiring continues to improve, ultra-low rate policies will be dialed back. It’s the first move in the opposite direction since the Fed went through extraordinary steps in response to the coronavirus pandemic.
Borrowing costs will be higher for mortgages, credit cards, and business loans. As part of that effort, the Fed has been buying $120 billion per month in mortgage and Treasury bonds to hold down long-term rates.
All of this was a step to aid the economy during the pandemic.
This doesn’t mean an increase in any short-term rates. Inflation has risen, Powell admitted, but the Fed is comfortable with the level at which it’s rising, if these proactive measures are enacted. Inflation rose 3.6% in July, compared to a year earlier. The month to month increase has slowed from 0.5% to 0.3%.
The Delta variant was heavy on Powell’s mind during his remarks. “While the delta variant presents a near-term risk, the prospects are good for continued progress toward maximum employment,” Powell explained, reflecting on the broader consensus that while variants may cause minor setbacks- the long-term outlook looks good for the economy.
Powell also dumped cold water on the prospect that increased wages across the U.S. could be leading to inflation. “We see little evidence of wage increases that might threaten excessive inflation,” he added.
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