Federal Reserve Chairman Jerome Powell plans to tell Congress on Wednesday that the U.S. economy is "a ways off" from where it needs to be in order for policymakers at the U.S. central bank to begin unwinding some of the ultra-easy policy measures put in place during the COVID-19 pandemic.
In remarks prepared for the House Financial Services Committee, Powell said that labor market conditions are improving but that there is "still a long way to go" and that achieving "substantial further progress" toward the Fed's economic goals is a "ways off."
His comments come as Fed officials grapple with how to handle deeply conflicting economic data: Inflation is surging – consumer prices rose at the fastest pace in 13 years last month – but job growth has been slower to reach pre-crisis levels, with some 9.5 million Americans still unemployed.
While Powell suggested that consumer prices may continue to rise in coming months, he maintained his stance that the current burst is temporary, the result of widespread bottlenecks that have severely disrupted the supply chain and strong demand as pent-up consumers kick-start their post-pandemic life.
"Inflation has increased notably and will likely remain elevated in coming months before moderating," he said.
In June, policymakers committed to holding the benchmark federal funds rate at a range between 0% and 0.25%, where it has been since March 2020, and to keep purchasing $120 billion in bonds each month, a policy known as "quantitative easing" that's designed to keep credit cheap.
Markets have been closing watching Powell for signs the central bank is ready to start scaling back the massive monthly bond purchases. Powell told reporters during the post-meeting press conference that officials had started "talking about talking about" tapering, and minutes from the June meeting showed that officials discussed how and when to begin pumping the brakes.
"We will continue these discussions in coming meetings," Powell said. "As we have said, we will provide advance notice before announcing any decision to make changes to our purchases."
The prospects of the Fed tightening monetary policy has rattled investors recently and contributed to stock-market volatility. The Fed has repeatedly said that it will not raise interest rates until the economy returns to full employment and inflation surpasses the bank's 2% target for "some time."
Markets surged on Wednesday after Powell indicated that the Fed is not close to pulling back its support, with the S&P 500 rising to a new intraday record.
Wall Street widely expects the Fed to provide more insight into the timing of tapering when central bankers gather in August at their annual retreat in Jackson Hole, Wyoming.