the president of Federal Reserve (Fed, the US central bank) Jerome Powell said on Thursday, 15, that the monetary authority faces challenges in deciding how to react to the current level of inflation in the United States, which is “well above” what the institution expected.
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In testimony before the Senate Banking Committee, Powell said that if the temporary nature of the price scale were confirmed, there was no reason to take further action. “The inflation we have right now is not moderately above 2%, it’s way above,” commented the Fed leader, who added that he was “not comfortable” with the move.
Powell also highlighted that the closing of schools due to the pandemic is one of the factors that explain the still high unemployment in the country.
Jerome Powell reiterated that public debt in the United States “is not on a sustainable path”. During testimony in the Senate, Powell said that, at some point, it will be necessary to stabilize the indebtedness, but he considered that this should happen when the economy is fully recovered from the crisis caused by the coronavirus.
Powell, however, commented that there is no evidence of significant problems in financing the fiscal deficit in the short to medium term, as “the dollar is still the global reserve currency”.
The Fed chairman characterized the current state of the US financial and banking system as “strong” during his testimony. Powell said the banks “did their job” during the coronavirus crisis.
The Fed leader commented that financial institutions are “well capitalized” and highlighted that the stress tests implemented by the monetary authority maintained the “severity”. He added that he would be prepared to raise capital requirements if necessary.
real estate prices
Jerome Powell admitted during his Senate testimony that relaxed monetary policy contributes to the recent surge in home prices. According to him, the topic has been discussed at the Federal Open Market Committee (Fomc) and will be discussed again at the next meeting.
Powell commented that home prices are rising at “a very high rate”. Regarding the issuance of digital currencies by the American BC, the Fed leader commented that he has not yet decided whether the instrument’s benefits outweigh the risks.
The Federal Reserve chairman also said it could be a few years before the workforce dynamics are clear. So the Fed can start pulling out stimulus before it fully understands them.
At the beginning of his testimony to the Senate committee, Jerome Powell repeated the testimony given yesterday to the House Financial Services Committee. In his speech, Powell reinforced his commitment to maintaining monetary policy while inflation and labor market objectives in the United States are not achieved.