In the year-round quantitative easing reduction observation
“It’s not close to the time of the rate hike
I will inform the market before tightening begins”
Photo = REUTERS
Jerome Powell, chairman of the US Central Bank (Fed) (pictured), affirmed that “It is not time to talk about the end of the bond purchase program.” The Fed has been supplying liquidity to the market by buying $120 billion in bonds a month, but it has made it clear that it will not shrink it in the near future.
Chairman Powell said in a conversation with Professor Marcus Brunermeier of Princeton University on the 14th (local time), saying, “The lesson learned from the global financial crisis is to be careful not to end the (bond purchase program) too soon.” In 2013, when Fed chairman Ben Bernanke mentioned the possibility of reducing quantitative easing, it is interpreted as a remark of concern about the recurrence of the’austerity attack’ that shocked the global financial markets. Chairman Powell said, “We will communicate transparently with the market long before we consider the gradual reduction of asset purchases,” he said. “When that point comes, we will let the world know.”
In recent financial markets, as the yield on 10-year U.S. Treasury bonds hit a sharp rise, it has been observed that the Fed may reduce the amount of asset purchases more quickly than originally planned. But Chairman Powell said, “The current economic situation, such as employment, is far from our targets. We will definitely use monetary policy tools until we are done with our mission.” The Fed’s policy goals are a fairly low level of unemployment and inflation above 2.0%. As of December last year, the US unemployment rate was 6.7% and the inflation rate was 1.4%.
Chairman Powell also said, “I will certainly do that when the time comes to raise the benchmark interest rate, but the timing is not close.” This statement is consistent with the market outlook that the current zero interest rate will be maintained for a considerable period of time. The decline in the unemployment rate, which is regarded as a warning sign of inflation, also drew a line that “unless inflation or other imbalances appear, that is not a reason to raise the benchmark rate.”
There is no change in monetary policy or guidance at this year’s first Federal Open Market Committee (FOMC) scheduled for 26-27 this month, while maintaining the dove-like view that Chairman Powell has held so far.
New York = Correspondent Cho Jae-gil [email protected]
Ⓒ Hankyung.com prohibits unauthorized reproduction and redistribution