Speaking at a news conference, Powell made clear his belief that the economy will struggle in the coming weeks and months, until widespread vaccinations and government rescue aid eventually fuel a sustained rebound.(Reuters File)
Speaking at a news conference, Powell made clear his belief that the economy will struggle in the coming weeks and months, until widespread vaccinations and government rescue aid eventually fuel a sustained rebound.(Reuters File)

Federal Reserve stresses its commitment to low rates as US economy stumbles

The Fed said in a statement after its latest policy meeting that hiring and economic growth had slowed, particularly in industries affected by the raging pandemic, notably restaurants, bars, hotels and others involving face-to-face public contact.
AP, Washington
PUBLISHED ON JAN 28, 2021 05:58 AM IST

Chair Jerome Powell said Wednesday that the Federal Reserve will keep pursuing its low-interest rate policies until an economic recovery is well underway, acknowledging that the economy has faltered in recent months.

The Fed said in a statement after its latest policy meeting that hiring and economic growth had slowed, particularly in industries affected by the raging pandemic, notably restaurants, bars, hotels and others involving face-to-face public contact. The officials kept their benchmark short-term rate pegged near zero and said they would keep buying Treasury and mortgage bonds to restrain longer-term borrowing rates and support the economy.

Speaking at a news conference, Powell made clear his belief that the economy will struggle in the coming weeks and months, until widespread vaccinations and government rescue aid eventually fuel a sustained rebound.

“We're a long way from full recovery,” he said. “Something like 9 million people remain unemployed as a consequence of the pandemic. That’s as many people as lost their jobs at the peak of the global financial crisis and the Great Recession.”

The Fed statement warned that the virus is posing risks to the economy. But the officials removed phrases from their previous statement in December that had said the pandemic was pressuring the economy in the “near term” and posed risks “over the medium term."

Powell said that language was removed because the Fed policymakers see the pandemic increasingly as a short-term risk that will likely fade as vaccines are distributed more widely. But he also cautioned that the threat remains a serious one, particularly because of the potential harm from new strains of the virus.

“We have not won this yet,” Powell said. “There’s nothing more important to the economy now than people getting vaccinated.”

As Powell spoke, a broad sell-off on Wall Street knocked more than 600 points off the Dow Jones Industrial Average, handing the stock market its worst day in nearly three months. The drop, which followed a recent record-setting run, came as investors focused on the uncertain outlook for the economy and corporate profits amid a still-raging coronavirus pandemic. Traders were also focused on the eye-popping surge in shares of GameStop, a money-losing video game seller that became the focus of a battle between small investors bidding it higher and big hedge funds betting it would fall.

For now, the job market is faltering, with 9.8 million jobs still lost to the pandemic, which erupted 10 months ago. Hiring has slowed for six straight months, and employers shed jobs in December for the first time since April. The job market has sputtered as the pandemic and colder weather have discouraged Americans from traveling, shopping, dining out or visiting entertainment venues. Retail sales have declined for three straight months.

Yet the Fed still envisions a sharp rebound in the second half of the year as the virus is brought under control by vaccines and government-enacted rescue money spreads through the economy. Americans fortunate enough to have kept their jobs have stockpiled massive savings that suggest pent-up demand that could be unleashed, with a big lift to the economy, once consumers increasingly feel safe about resuming their old spending patterns.

Powell was pressed during the news conference on whether the Fed should respond to the recent speculative surge in the prices of some individual stocks, notably shares of GameStop, and whether that buying frenzy suggested a dangerous bubble in overall stock prices. Powell deflected the questions by saying the Fed's interest rate policies aren't well-suited to address speculation in the stock market.

In addition, he said, “if you look at what’s really been driving asset prices in the last couple of months, it isn’t monetary policy. It’s expectations about vaccines and also fiscal policy. Those are the news items that have been driving asset values in recent months.”

Powell also noted that the Fed is keeping rates low and buying bonds to support economic growth. Reversing those policies to offset potential bubbles in the stock market, he said, could harm the economy.

“We don't actually understand the trade-off,” he said. “Will it actually cause more damage, or will it help? I think that's unresolved."

The Fed has signaled that it expects to keep its key short-term rate at a record low between zero and 0.25% through at least 2023. Earlier this month, Vice Chair Richard Clarida said he expects the Fed's bond purchases to extend through the end of this year, which would mean continued downward pressure on long-term loan rates.

The central bank said it will continue its bond purchases until it makes “substantial further progress” toward its goals of maximum employment and stable 2% inflation. Powell said “it is likely to take some time” for that progress to be achieved.

The Fed’s drive to keep long-term rates low have helped hold down mortgage rates and fueled home sales and price increases. Home prices, for example, surged 9% in November compared with a year earlier, its fastest increase in more than six years.

The prospect of significant more government rescue aid and ongoing vaccinations has raised some concern that as Americans eventually release pent-up demand for airline tickets, hotel rooms, new clothes and other goods and services, the economy might accelerate and annual inflation could surge above the Fed’s 2% target.

If many companies don’t initially have the capacity to meet that demand, prices would pick up. Powell, however, dismissed those concerns, pointing to several long-run factors that have restrained inflation for more than a decade, such as an aging population that tends to spend less and save more, technological developments that improve efficiency, and overseas competition.

“Frankly, we welcome somewhat higher inflation," Powell said. The Fed believes that inflation sustainably at 2% guards against deflation, a drop in prices and wages. And since interest rates include expected levels of inflation, that gives the Fed more room to cut interest rates. “The kind of troubling inflation that people like me grew up with seems far away and unlikely.”

The Fed adopted a framework last year that calls for inflation to average 2% over time. Given that inflation has mostly languished below that level since the Fed adopted it as a target in 2012, policymakers would have to let inflation run above 2% for some time to make up for the years of below-target price increases.

SHARE THIS ARTICLE ON
Close
Union minister of state for finance and corporate affairs Anurag Thakur on Saturday addressed the Punjab chapter of Entrepreneurs Organisation. (ANI File Photo )
Union minister of state for finance and corporate affairs Anurag Thakur on Saturday addressed the Punjab chapter of Entrepreneurs Organisation. (ANI File Photo )

On cryptocurrency, Anurag Thakur says ‘innovation welcomed, must evaluate ideas’

By hindustantimes.com | Written by Kanishka Sarkar, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 09:09 PM IST
Anurag Thakur’s remark comes days after the Reserve bank of India (RBI) governor Shaktikanta Das flagged “major concerns” about the impact of cryptocurrencies on financial stability.
Close
The chairman of the 15th Finance Commission NK Singh(Sonu Mehta/ HT Archive)
The chairman of the 15th Finance Commission NK Singh(Sonu Mehta/ HT Archive)

Opted for continuity in deciding tax devolution to states: FC chairman N K Singh

PTI
UPDATED ON MAR 06, 2021 07:39 PM IST
  • The 15th Finance Commission has recommended that states be given 41 per cent of the divisible tax pool of the Centre during the period 2021-22 to 2025-26, which is at the same level as was recommended by the 14th Finance Commission.
Close
Other than tax-saving investments, taxpayers also need to complete other tax-related tasks in order to avoid penalties.(Reuters)
Other than tax-saving investments, taxpayers also need to complete other tax-related tasks in order to avoid penalties.(Reuters)

From ITR to PAN-Aadhaar linking: Tax-related tasks to complete before March 31

By hindustantimes.com | Edited by Mallika Soni
UPDATED ON MAR 06, 2021 04:45 PM IST
  • Here’s a list of some of the tasks which need to be performed by taxpayers before March 31
Close
Tail of AirAsia X plane as seen at the Garuda Maintenance Facility AeroAsia in Tangerang, Indonesia. (Reuters)
Tail of AirAsia X plane as seen at the Garuda Maintenance Facility AeroAsia in Tangerang, Indonesia. (Reuters)

AirAsia CEO says company may launch flying-taxi business in 2022

Bloomberg
PUBLISHED ON MAR 06, 2021 02:55 PM IST
With the airline business taking a hit from the coronavirus pandemic, AirAsia has been expanding in the digital space.
Close
Payrolls jumped by 379,000 last month, which was almost double expectations and pushed the unemployment rate down slightly to 6.2 percent, the Labor Department reported.(AFP file photo. Representative image)
Payrolls jumped by 379,000 last month, which was almost double expectations and pushed the unemployment rate down slightly to 6.2 percent, the Labor Department reported.(AFP file photo. Representative image)

Covid rescue plan clears hurdle as US economy shows gains

Posted by Harshit Sabarwal | AFP
PUBLISHED ON MAR 06, 2021 02:26 PM IST
Negotiations in the evenly divided Senate had frozen the chamber's action for some nine hours before the Democrats reached agreement with moderate Senator Joe Manchin, who had balked at the scale of the benefits.
Close
It was under his leadership that Muthoot Finance reached heights and also became the first NBFC to enter the ' <span class='webrupee'>₹</span>1000 crore net profit club'.(Muthoot Group)
It was under his leadership that Muthoot Finance reached heights and also became the first NBFC to enter the ' 1000 crore net profit club'.(Muthoot Group)

Muthoot Group chairman MG George passes away: All you need to know

By hindustantimes.com | Written by Deepali Sharma
PUBLISHED ON MAR 06, 2021 11:24 AM IST
Notably, George was one of the six people from the Malayalee background to have entered the Forbes Magazine's Rich list of 2020.
Close
The central bank in April had announced the government will issue Sovereign Gold Bonds (SGBs), part of the central government’s market-borrowing programme, in six tranches beginning April 20 till September.(Reuters)
The central bank in April had announced the government will issue Sovereign Gold Bonds (SGBs), part of the central government’s market-borrowing programme, in six tranches beginning April 20 till September.(Reuters)

A weak week for gold: Here's how the bullion fared

By hindustantimes.com | Written by Deepali Sharma, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 11:17 AM IST
The continuous fall in the prices of gold allured Indian consumers to purchase more gold in physical form.
Close
In response to another question, Sitharaman said it was for the federal tax body, the GST Council, to take up this issue when it sees fit.
In response to another question, Sitharaman said it was for the federal tax body, the GST Council, to take up this issue when it sees fit.

Centre, states need to discuss fuel taxes, says Sitharaman

By Gireesh Chandra Prasad, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 02:15 AM IST
  • In an interaction with members of the Indian Women’s Press Corps (IWPC), Sitharaman said that consumer sentiment about the tax burden on auto fuel was understandable.
Close
The Mukesh Ambani-led company expects to vaccinate around 900,000 people, including family members of employees, the company said.(Reuters representative image)
The Mukesh Ambani-led company expects to vaccinate around 900,000 people, including family members of employees, the company said.(Reuters representative image)

Reliance to bear the cost of covid shots for its staff

By Kalpana Pathak, Hindustan Times, Mumbai
PUBLISHED ON MAR 06, 2021 02:10 AM IST
  • Nearly 1.1 million vaccine doses were administered to people above the age of 60 and those in the 45-59 age group till Thursday.
Close
The Survey said a major challenge most firms face is the complex architecture of the governance framework, including the density of legislation and statutory compliances.(MINT_PRINT)
The Survey said a major challenge most firms face is the complex architecture of the governance framework, including the density of legislation and statutory compliances.(MINT_PRINT)

Govt plans to scrap 6,000 compliances

By Asit Ranjan Mishra, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 02:04 AM IST
  • Mohapatra said the idea came during Modi’s meeting with Marriott International president and chief executive Arne Sorenson, who complained about the complex regulations in starting and running a hotel in India.
Close
Flush with liquidity and in tandem with Reserve Bank of India’s (RBI’s) repo rate cuts since March last year, banks have been lowering their lending rates.(Hemant Mishra/ Mint file photo)
Flush with liquidity and in tandem with Reserve Bank of India’s (RBI’s) repo rate cuts since March last year, banks have been lowering their lending rates.(Hemant Mishra/ Mint file photo)

ICICI cuts home loan rates to a decadal low

By Shayan Ghosh, Hindustan Times, Mumbai
PUBLISHED ON MAR 06, 2021 02:00 AM IST
  • ICICI Bank’s move comes days after rival lenders such as State Bank of India (SBI), Kotak Mahindra Bank and Housing Development Finance Corp. Ltd cut their home loan rates.
Close
Index funds and ETFs (exchange traded funds), which are passive in nature, will also be required to vote.(PTI File Photo)
Index funds and ETFs (exchange traded funds), which are passive in nature, will also be required to vote.(PTI File Photo)

Voting on corp resolutions compulsory for MFs: Sebi

By Neil Borate, Hindustan Times, Mumbai
PUBLISHED ON MAR 06, 2021 01:57 AM IST
  • These votes will have to be disclosed to unit holders under existing regulations. Voting will be at the MF level (rather than scheme level).
Close
Passenger vehicle manufacturers have been witnessing a sustained increase in retail sales on the back of improvement in economic activity and increased preference for personal mobility to avoid Covid infection.
Passenger vehicle manufacturers have been witnessing a sustained increase in retail sales on the back of improvement in economic activity and increased preference for personal mobility to avoid Covid infection.

Toyota SUV sales may skid on gaps in chipset supply

By Malyaban Ghosh, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 01:55 AM IST
  • Supply of vehicles from Maruti Suzuki India Ltd—as part of the alliance with Suzuki Motor Corp—has helped Toyota increase its domestic market share in the premium hatchback and entry-level SUV segment, where it was not present before.
Close
ASI data is the most important source of industrial statistics of the registered organised manufacturing sector of the economy.(Reuters)
ASI data is the most important source of industrial statistics of the registered organised manufacturing sector of the economy.(Reuters)

Total factories in India grew by 2% in 2018-19

By Abhishek Jha, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 01:51 AM IST
  • The top three states by GVA were Maharashtra, Gujarat, and Tamil Nadu. They had a share of 41% in the total GVA. Rural India added nearly as much GVA (49%) as urban India (51%).
Close
It is often believed that taxes on fuel affect the rich more than the poor, as the latter do not own vehicles.(Amal KS/ Hindustan Times)
It is often believed that taxes on fuel affect the rich more than the poor, as the latter do not own vehicles.(Amal KS/ Hindustan Times)

How do India’s fuel taxes impact the less affluent?

By Vineet Sachdev, Hindustan Times, New Delhi
UPDATED ON MAR 06, 2021 05:44 AM IST
  • Using average consumption shares to calculate the burden of an indirect tax has a problem.
Close
SHARE
Story Saved
OPEN APP