Federal Reserve Chairman Jerome Powell.
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Technology stocks pared steep early losses Tuesday as Federal Reserve Chairman
Jerome Powell
reiterated the central bank’s promise to keep interest rates near zero and maintain its bond-buying program until the U.S. economy improves.
In the Fed’s semiannual monetary policy report to Congress, Powell said that “the economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved.” He pointed to hefty unemployment rates among lower-income workers as a particular concern.
Most of the views in his speech echo prior comments from Powell at panels and in news conferences.
Nevertheless, an early-session selloff in technology stocks moderated after his comments, with the
Nasdaq Composite
down 2% at 11:45 a.m. It had declined as much as 3.9% in morning trading. Long-term Treasury yields were flat as Powell answered questions from Congress, paring a mild advance that occurred during his speech.
In his prepared comments, Powell said that officials believe rates should remain near zero “until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”
“
Many parts of the economy have recovered, but in the bottom quartile we think the unemployment rate is in excess of 20%.
”
The Fed plans to continue its program buying Treasuries and mortgage-backed securities at its current pace of $120 billion a month until “substantial further progress” is made in the U.S. economic recovery from Covid-19, he added.
“We haven’t really been making [substantial progress] for the last three months, but expectations are that will pick up as the pandemic subsides,” he said in response to a question from
Sen. Pat Toomey
(R., Penn.).
The Fed outlook has been in focus this week, after a monthslong push higher in Treasury yields has sparked some concern on Wall Street over risky and more-speculative stocks. While most of the push higher has been driven by rising market inflation forecasts, last week investors started betting on marginally tighter Fed policy, pushing the 30-year inflation-adjusted yield into positive territory for the first time since June.
In response to a question from
Sen. Mike Rounds
(R., S.D.), Powell said that he had a couple of messages he would like to send markets.
“We’re 10 million jobs below where we were in February 2020, 10 million payroll jobs…and a lot of those jobs were concentrated in the lower end of the income spectrum. Many parts of the economy have recovered, but in the bottom quartile we think the unemployment rate is in excess of 20%,” he said. “So there’s a long way to go. We’ve put out forward guidance on asset purchases and rates, we think that forward guidance is appropriate.”
When it comes to winding down easing, “you can expect us to move patiently over time, and as we see better data coming in,” he said. “We expect progress will begin to return in coming months, and expect us to move carefully and patiently and with a lot of advance warning.”
For now, however, Powell highlighted recent weakness in job creation as a concern. He said that while the U.S. economy could see strong growth if vaccinations help contain Covid-19 in the second half of the year, the challenge isn’t over yet.
“The job is not done. That’s the thing I keep coming back to. We need to finish the job with the pandemic, get it under control,” he said.
Write to Alexandra Scaggs at alexandra.scaggs@barrons.com
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