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Powell sees no fee hikes on the horizon so long as inflation stays low

Federal Reserve Chairman Jerome Powell reiterated his commitment to keeping interest rates low for the foreseeable future, despite expressing hopes for a strong economic recovery.

"When it is time to raise interest rates, we will certainly do it, and that time is not coming soon," said the head of the central bank on Thursday during a question and answer session presented by Princeton University.

During the extensive discussion, Powell spoke about how the Fed has dealt with the challenges of the Covid-19 pandemic and what expectations it has for the future.

In its most recent policy statement, released in December, the Federal Open Market Committee said it would maintain an accommodative stance until it saw "significant further progress" in meeting its employment and inflation targets.

On the employment mandate, Powell stressed the Fed's new approach to inflation, which does not raise interest rates even if unemployment falls below what would historically have been seen as a warning sign of impending price pressures.

"That would not be a reason to raise interest rates unless we see inflation or other imbalances that would jeopardize the fulfillment of our mandate," he said.

One such imbalance would be inflation. In the past few days, some Fed officials have warned that inflation could rise sooner than the central bank expected, and force the removal of some policy precautions earlier than committee members had forecast.

The Fed's short-term policy rate is anchored near zero and continues to buy at least $ 120 billion worth of bonds every month. Core inflation is 1.4%, well below the Fed's 2% target.

"If inflation should rise in an undesirable way, we have the tools and we will use them," he said. "Nobody should doubt it."

Powell noted that while the economy is facing major challenges and there is still a long way to go to heal the job market, there is reason to be optimistic.

"We were in a good place in February 2020 and we think we can get back there much sooner than we feared," he said.

Powell spoke on the same day that the Department of Labor reported the highest increase in jobless claims since August.

That publication itself came the week after the department reported that the number of non-farm workers fell for the first time since April in December, as the leisure and hospitality sectors were severely constrained due to restrictions related to Covid.

Despite these challenges, Powell has a bright future for the economy, partly due to the lack of contagion during the 2008 financial crisis. There have been some concerns about the continued rise in corporate debt and stretched valuations in the stock markets. But the Fed chairman said he was not concerned about these issues.

"Every economy, and certainly our economy, faces many longer-term challenges," he said. "But I would say there weren't any obvious imbalances threatening the ongoing expansion. You really can't identify anything that looked like it was going to explode, the expansion."

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