The Fed Delivers a Baby, Gold Jumps – Mish Talk

Aggressive Stimulus Not Needed

At his confirmation hearing today, Powell tells the Senate Economy No Longer Needs Aggressive Stimulus. 

The central bank will use its tools “to prevent higher inflation from becoming entrenched,” Mr. Powell said Tuesday at his confirmation hearing before the Senate Banking Committee.

Mr. Powell said he hoped there would be “a return to normal supply conditions” this year but added, “if we see inflation persisting at high levels longer than expected [and] we have to raise interest rates more over time, we will.”

“What we have now is a mismatch between demand and supply. We have very strong demand in areas where supply is constrained,” such as for cars, he said.

The main question for the Fed this year boils down to “how are those two things going to get better into alignment,” he said. “A part of the answer is going to be through shifts in demand.” The Fed typically lowers interest rates to boost demand and spur more growth, and it raises them to slow down the economy and curb demand.

“It is really time for us to move away from those emergency pandemic settings to a more normal level,” Mr. Powell said. “It’s a long road to normal from where we are.”