Still, the market reacted strongly to his interview. The 10-year US government bond yield jumped and was up 0.07% at 1.54% around the time of the closing bell.
“Compared to the economic scenarios we contemplated a year ago, it’s good to see where we are,” he said.
US inflation is currently below the Fed’s long-run target of around 2%. In fact, price increases have been rather low for a long time.
“For several decades the US and world economy has been in a low inflation world,” Powell said.
While an uptick in prices during the reopening is likely, it’s just as likely that these effects will be short lived.
“With long rates rising in response to his commentary, we are again seeing a market that is taking control of monetary policy from the Fed,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group in a note to clients. He also called Powell “very dovish.”
“If we do see what we believe is likely a transitory rise in inflation […] I expect that we will be patient,” Powell said during the interview. “There’s a difference between a one-time surge in prices and ongoing inflation.”
But Powell is well aware of the perils of high inflation: “High inflation is a very bad state of affairs. It hurts people most on fixed incomes and lower incomes,” he said.
He added that various conditions would need to be in place for the central bank to increase interest rates, including getting the job market close to maximum employment and long-run inflation sustainably around 2%.
The timing of an interest rate hike will depend entirely on these conditions, Powell said.
The job markets won’t be fixed this year
As for the labor market — which is still short about 10 million jobs compared with February 2020 before the pandemic hit — improvements are coming, but the work isn’t done.
“There is good reason to expect job creation will pick up in coming months,” Powell said, but that doesn’t mean the labor market will be fully recovered come December.
“We haven’t succeeded in this yet but we’re right there. The next couple of month very important on the pandemic. If we keep making progress that’s what will help the economy,” the central banker said.
For example, the unemployment rate — currently at 6.3% — might not show whether the job market has recovered, considering that it doesn’t count the workers who have dropped out of the labor force altogether because of the pandemic. As a result, America has witness the sharpest drop in labor force participation in many decades, Powell said.
Powell took over at the helm of the central bank in February 2018, but his four-year term will come to an end next year. He declined to say whether he would like to serve a second term.
Read More: Dow drops: Stocks tumble as Powell signals inflation is ahead