Powell: "Interest Rate Hikes Will Be Based on Actual Conditions, Not Predictions"

Expansion of Economic Recovery, Decline in Unemployment Rate, and Expected Inflation Increase
Declared Will Act After Confirming Both Inflation and Employment Recovery
Still Many Risk Factors Evaluated
"Early Tapering Is Premature"
"Monetary Policy Not Changed Despite Rising Treasury Yields"
Dot Plot Forecasts No Rate Hikes Until 2023

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), firmly stated that there are no plans to raise interest rates based solely on predictions without clear signs of economic recovery. He also declared that it is premature to begin early tapering (reduction of asset purchases). This clearly drew a line against early rate hikes due to inflation concerns that the market had feared.

Powell made these remarks during a press conference following the Fed's announcement on the 17th (local time) to keep interest rates steady and maintain asset purchases.

On this day, despite the Fed revising up the U.S. economic growth forecast for this year to 6.5%, core inflation to 2.2%, and overall inflation to 2.4%, thereby acknowledging inflation above 2%, it expressed a strong commitment to maintaining the current monetary policy.

In particular, the Fed projected that inflation rates would continue to exceed 2%, with 2% in 2022 and 2.1% in 2021.

In other words, the Fed, known as the 'inflation fighter,' acknowledged inflation above 2% but stated it would not raise interest rates.

The statement released by the Fed said, "Due to the COVID-19 pandemic, conditions in vulnerable sectors remain weak. Inflation remains below 2%."

During his opening remarks and Q&A session, Chairman Powell repeatedly emphasized the need for clear action. He cited examples such as inflation reaching the 2% target and achieving full employment.

Powell said, "Due to government stimulus measures and vaccinations, the labor market will recover this year and inflation will appear," but added, "We need to see what actually happens rather than just predictions."

This indicates that although the Fed forecasts the unemployment rate to fall from the current 6.2% to 4.5% by the end of this year and inflation to exceed 2%, it is not yet in a position to raise interest rates.

Powell predicted, "Inflation above 2% will occur temporarily but cannot be sustained."

Regarding questions about the surge in U.S. Treasury yields due to inflation concerns, he said, "The current monetary policy is appropriate. There is no reason to retreat because of rising Treasury yields."

The dot plot presented by FOMC members on this day indicated no rate hikes until 2023, consistent with the forecast after the December FOMC meeting last year. However, the number of members expecting rate hikes in 2023 increased from five to seven this time.

Powell also announced that a decision on the supplementary leverage ratio (SLR) exemption, which the market had been concerned about, would be announced soon. The SLR requires banks to hold a minimum of 3% of assets, and important financial institutions to hold 5%.

This content was produced with the assistance of AI translation services.