Jerome Powell, the chairman of Federal Reserve Banks, has announced a policy that effectivley amounts to endless money printing at least for the foreseeable future.
In an extensive press conference, Powell said the current 0.21% interest rates are to remain in place until inflation is above 2% for some time, with their projections suggesting that would remain the case for at least the next three years.
Asked by Bloomberg whether they are now out of ammo since interest rates are their main policy tool and in this forward guidance they effectively stated they won’t be changed for years, Powell said Fed is “not out of ammo.”
There’s the lending tools, the balance sheet, and forward guidance in their toolbox, he said.
Pressed on whether the balance sheet creates asset inflation and therefore risks creating a bubble, Powell said the “ten year expansion is notable for a lack of financial bubbles or asset bubbles,” in addition to stating that “the connection between asset purchases and financial stability is not a tight one.”
Fed is to maintain a monthly injection of at least $80 billion into bonds and $40 billion into agency backed mortgage securities.
Powell refused to give any forward guidance on how this $120 billion might change, but emphasized that these are lending powers, not spending powers.
Fed expects this $120 billion a month to be paid back with interest, but interest rates “will remain accommodative until the economy is far in its recovery.”
“We expect it will take some time for inflation to rise above 2%,” he said, calling it a slow process, “but there’s a process and inflation does move up over time.”
Reuters asked for a clarification on a number of qualifiers in regards to this new policy of inflation, with Powell saying a lot of it was a “judgmental assessment.”
“Not looking for one month of above 2% inflation,” he said, without specifying how many months they looking for.
In addition he said they targeting inflation at moderately above 2%, not high inflation. Everyone knows the word moderate, he said, but it’s not clear whether that’s 3%, 4% or 5%.
Powell said they are resisting the temptation to try and create a formula or rule, emphasizing they want to avoid situations where the central bank loses the ability to support the economy.
He also said there will be some further fiscal action, with the question being how much and when, indicating they haven’t decided yet.
Finally, a $600 billion lending program to mainstreet, mainly small and medium size businesses, has seen only $1.4 billion taken out in loans.
A Bloomberg reporter pressed on suggestions the treasury is telling banks to target zero losses despite lending through this program.
Powell said loans can only be made to solvent borrowers, arguing “banks like to make good loans.”
He said Fed has to go through the banking system, so if it’s a business that’s been shut down temporarily or is fully bankrupt, then they won’t be able to get a loan.
In this somewhat decent press conference where generally proper questions were asked and somewhat answered, there was a lack of scrutiny on why these extremely low interest rates are not quite being passed on to retail borrowers.
Credit card rates for example are pretty high and no where near zero, mortgages are lower, but it’s very difficult to get one, with a lot of this new money generally not quite finding its way to the mainstreet except for through Trump checks and other likewise grants or benefits.
Powell said they can’t target different groups, but they talk a lot about inequality, however he said there’s nothing fed can do about it.
So suggesting that Fed doesn’t quite have the power to order banks to pass on the benefits of low interest rates to the middle class, with most of this new money going to the upper class and from there primarily to hard assets like stocks, property and bitcoin as well as gold.
Through that it kind of trickles down, but obviously the block reward benefit has generally gone by that point with no direct Proof of Work here to allocate this block reward, but ‘proof’ of “judgment assessment” instead.