Powell spoke: the main points of the FED governor’s speech
WASHINGTON, DC – MAY 19: A gold plated seal outside inside the Eccles Building, the place of the Board of Governors of the Federal Reserve System and of the Federal Open Market Committee, May 19, 2016 in Washington, DC. (Photo by Brooks Kraft / Getty Images)
Today the long-awaited speech of Jerome Powell has arrived, which should provide the new guidelines of the FED in the difficult balance between “Tapering”, ie the end of the expansionary policy, and the economic slowdown. It was an important press conference especially for future prospects. Here are the key points:
1. Inflation – The FOMC (The FED Open Market Committee) statement mentioned the word “inflation” or “price stability” a total of 10 times. This is an essential point, even if still "transitory".
2. Tapering – "Last December, the Committee indicated that it would continue to increase its holdings … until further substantial progress has been made … since then, the economy has made progress … and the Committee will continue to evaluate the progress in upcoming meetings ". I read it as "we will announce tapering at a meeting in the near future". So there will be, but not for now.
3. Permanent RP Structure – The FOMC discussed the details of this structure at the last meeting and pulled the trigger today. The structure will be the mirror image of the RRP structure. The Fed will provide cash to approved Primary Dealers at a rate of 0.25% (upper end of the fed funds target range) with a $ 500 billion program cap. Although 0.25% is currently well above market rates, there will be time in the future when this structure will be used on a regular basis. But there are a few years left. From that point on, the Fed has officially created a corridor system for Repo rates with the RP facility as the maximum rate at 0.25% and the RRP facility rate as the basis at 0.05%.
4. Goodbye IOER (interest rates on excess reserves). This term will be replaced by IORB (Interest On Reserve Balances). The complex concept of "Excess", of incremental, is eliminated to fix an interest on the total reserves of the banks at the Central Bank.
5. Powell called "further substantial progress" as maximum employment with little / no consideration for inflation. This means that while tapering is coming – eventually – it will be a function of improvements in the labor market not in response to rising inflation. And if the Delta variant leads to another round of incentives and benefits and more unemployment benefits, we may not see normalization in the labor market – and lower unemployment rates – for a long, long time. So tapering, the end of incentives, will come, but it won't be tomorrow.
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The Powell article spoke: the main points of the FED governor's speech comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/powell-ha-parlato-i-punti-principali-del-discorso-del-governatore-della-fed/ on Thu, 29 Jul 2021 06:00:36 +0000.