WASHINGTON: Raising interest rates and otherwise removing the extraordinary stimulus the Federal Reserve provided to the US economy during the Covid-19 pandemic will not harm the labor market, central bank chief Jerome Powell said Tuesday.
With inflation rising and employment recovering, "The economy no longer needs or wants the very highly accommodative policy" and returning it to normal "should not have negative effects" on employment, Powell told lawmakers during a hearing on his nomination for a second term at the helm of the central bank.
Powell said "the labor market is recovering incredibly rapidly" with the unemployment rate falling "pretty close to half-century lows" at 3.9 percent in December, while inflation is now "very far above target."
The Fed is in the process of winding down its bond buying stimulus program, which will end in March, after which it is expected to raise the benchmark lending rate, although Powell stressed that policymakers have not decided on the timing.
US private hiring surged to 807,000 in December: ADP
"It's time to move away from emergency pandemic settings," Powell said, but noted that there is "a long road to normal from where we are."
The Fed chief attributed most of the surge in inflation -- which has reached a four-decade high -- to a "mismatch" between supply and demand caused by supply chain snarls.
However, policymakers are watching wage growth carefully and are ready to act to rein in inflation if it threatens to become entrenched.
Powell said the inflation pressures are likely to last through the middle of the year.
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