Below we present some key takeaways from the Fed Chairman’s Q&A session:
- Regarding inflation and tapering, the Fed will need to see substantial further progress in the economy and this was not seen in the past 3 months. However Powell expects some improvement this year.
- Inflation may temporarily rose on base effects
- With time growth of balance sheet will slow but asset purchases will continue until substantial further prioress is seen
- Fed have the necessary tools to deal with it unwanted inflation
- Powell does not see how a burst in fiscal support or spending would lead to high inflation
- Increase in spending should not lead to large or persistent inflation
- This is not the time to think about a budget deficit, although such a time will come
- Powell does not believe that uptick in inflation that's coming in the months ahead will be large or persistent
- Fed does not want to repeat the inflation mistake of 1970s
- Fed will update 2021 GDP growth forecast to the range of 6% from current forecast is 4.2%
- Fed is watching commercial real estate sector very closely however does not have an opinion on asset price bubbles
- Powell expect 'enthusiastic spending' to boost inflation but this should not be particularly large or persistent
- Inflation risks are to the downside
Powell gave the markets everything they wanted to hear and in his testimony there was no indication that anything had changed regarding future Fed actions.
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Indices resumed downward move following Powell's testimony. US100 returned below 13,000 pts level. Source: xStation5
