Federal Reserve Governor Jerome Powell, who has never dissented from a policy decision, said monetary policy will remain accommodative “for quite some time,” with below-target inflation and unemployment “well above” the longer-term normal level.
“The case for continued support for our economy from monetary policy remains strong,” Powell said today in the text of prepared remarks in New York.
Powell said “our private sector shows real signs of underlying improvement,” echoing a view expressed earlier today by New York Fed President William C. Dudley, who said he sees “persuasive evidence of improved underlying fundamentals for much of the private sector.” Both central bankers mentioned stronger automobile and housing demand.
The policy-setting Federal Open Market Committee affirmed its plan on June 19 to keep buying $85 billion per month in mortgage-backed securities and Treasuries. Chairman Ben S. Bernanke said in a press conference following the FOMC meeting that, should the economy continue to improve in line with its forecast, the Fed could begin trimming its purchases later this year and end the program altogether in mid-2014.
A “strongly” recovering housing market is a basis “to hope for the kind of self-reinforcing cycle of economic growth that we have been waiting to see,” Powell said. “I expect that inflation will return gradually to our 2 percent objective, and that we will continue to make progress in reducing unemployment.”
The Standard & Poor’s 500 Index fell 0.1 percent today to 1,614.08, while the yield on 10-year Treasury notes slipped 0.01 percentage point to 2.47 percent.
The FOMC reiterated last month that it expects to keep interest rates near zero as long as unemployment is above 6.5 percent and inflation doesn’t exceed 2.5 percent. The Fed has kept its benchmark borrowing cost near zero since December 2008.
In his speech earlier today, Dudley, the vice chairman of the FOMC, said economic growth will probably quicken in 2014, possibly warranting a reduction in the bond-purchasing program. “The private sector of the economy should continue to heal, while the amount of fiscal drag will begin to subside,” he said in a speech in Stamford, Connecticut.
Powell also said today that “much remains to be done” before U.S. banking regulators eliminate the perception that some financial institutions are too big to fail.
“I share the view expressed recently by several of my board colleagues that the work of large bank resolution is not complete, and that further measures may be necessary,” the Fed governor said.
The Fed’s board today unanimously approved global rules known as Basel III requiring lenders to hold bigger cushions against losses. The U.S. is “very close” to proposing a leverage ratio of capital to assets for banks that exceeds the 3 percent minimum set by the Basel Committee on Banking Supervision, Fed Governor Daniel Tarullo said today. The Fed has taken a leading role in overhauling regulation since the 2008 credit crisis led to the worst recession since the 1930s.
“The Federal Reserve is considering a requirement that systemic institutions maintain sufficient long-term debt at the parent company level to absorb losses and recapitalize operating subsidiaries in the event of failure,” Powell said. “We expect to propose such a requirement later this year.”