Fed chief Powell warns of COVID, does not expect inflation

By Ann Saphir and Howard Schneider

Apr 8 (Reuters) – Federal Reserve Chairman Jerome Powell said on Thursday that the central bank is not close to reducing its support for the US economy, noting that an expected rise in prices this year is likely to be temporary. , and that a rebound in COVID-19 cases could slow down the recovery.

“Cases are on the rise again, so I would urge people to get vaccinated and continue to distance themselves socially,” Powell told an economic forum during the virtual meeting of the International Monetary Fund and the World Bank. “We don’t want another outbreak to occur: even though it may have less economic damage and kill fewer people, it will slow down the recovery.”

The Fed has long said that the virus, which triggered the economy’s biggest downturn in decades just over a year ago, will determine the course of the recovery.

About 3 million Americans are getting vaccinated each day, and most older people at risk of dying from coronavirus have already been immunized. But the new variants are causing an increase in cases in some sectors of the country.

Meanwhile, much of the world has just begun mass vaccination, posing another risk, according to Powell.

The official said an increase in spending as the U.S. economy reopens, coupled with supply bottlenecks, will likely drive prices this year, but won’t result in the kind of year-over-year hikes that would constitute inflation and require a reaction from the Fed.

“We believe there would be an upward momentum on prices that could be passed on to consumers in the form of price increases. We believe that will be temporary,” Powell said at an International Monetary Fund event, noting that inflation has been down for 25 years in the United States, feeding a psychology of low inflationary expectations.

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“If inflation were to move unexpectedly, against our expectations, significantly above the levels we are comfortable with, and in particular inflation expectations … if we see them move persistently and materially above levels we are comfortable with, we would have to react, “he added.

The Fed has kept interest rates near zero for more than a year and has promised to leave them at that level until the economy reaches full employment and inflation hits 2% and is on track to exceed that target for some time.

It is also buying $ 120 billion of bonds a month to further reduce borrowing costs, and has vowed to continue to do so until it sees “substantial progress” in both inflation and employment.

Last month, after Congress passed its latest massive fiscal relief package, Fed officials raised their forecasts for growth, inflation and employment for this year, but Powell noted that that wouldn’t necessarily translate into a change in the economy. monetary policy stance.

To judge whether the time has come to reduce asset purchases, Powell said that “we don’t really look at the forecasts for this purpose, but we look at the actual progress” of inflation and employment.

(Report by Ann Saphir. Edited in Spanish by Manuel Farías and Javier Leira)